KARACHI: The rupee fell to an all-time low against the dollar for the second day in a row on Tuesday, reaching Rs224 in the interbank market.
According to the Forex Association of Pakistan (FAP), the greenback was up Rs8.8, or 4 per cent, against the previous day’s close of Rs215.20 to reach Rs224 around 2:30pm.
Mettis Global Director Saad Bin Naseer said the rupee was seeing a decline due to “panic buying [of the dollar] by banks in the interbank market”.
He said that “panic is setting in the financial markets following fears of change in [the] government in Punjab and Centre” after the by-polls on the province’s 20 seats.
The by-elections saw the PTI register a thumping victory against the PML-N, which leads the ruling coalition. Following the win, the PTI has demanded early elections.
Naseer went on to say that the downgrading of Pakistan’s outlook from stable to negative by the Fitch rating agency further increased panic in the market.
Moreover, he said, the demand for dollar among importers had also “spiked” as the future of inflows from the International Monetary Fund (IMF), friendly countries and bilateral sources remained a concern.
The chief executive officer of investment firm Alpha Beta Core, Khurram Schehzad, also attributed the rupee’s rapid decline to Fitch’s downgrading and the global trend.
“The dollar is getting stronger in the global market against almost all the world currencies. The Pakistani rupee is not an exception,” he said.
“In addition, Pakistan’s external account issues are not settled as yet. The IMF is yet to be on-boarded and the flows are yet to materialise. Global rating agencies have put a negative outlook on the economy so that is an additional burden that is weighing on the financial markets in general, the foreign exchange market in particular.”
Pak foreign exchange
The country’s total liquid foreign exchange reserves dropped by $132 million during the last week. According to State Bank of Pakistan’s (SBP) weekly foreign exchange reserves report issued on Thursday, total liquid foreign exchange reserves held by the country stood at $15.611 billion as of July 7, 2022 compared to $15.742 billion as of June 30, 2022.
During the week under review, SBP’s reserves decreased by $99 million due to external debt payments. SBP’s foreign exchange reserves declined to $9.717 billion by the end of the last week down from $9.816 billion. Net foreign reserves held by commercial banks also slide by $33 million to $5.893 billion.
It may be mentioned here that federal government is making efforts to boost the sliding foreign exchange reserves of the country. Recently, Pakistan received some $2.5 billion inflows from China, while on Thursday IMF and Pakistan reached a staff level agreement on policies to complete the combined 7th and 8th reviews of Pakistan’s Extended Fund Facility (EFF). Subject to Board approval, this agreement will release $1,177 million (SDR 894 million) to Pakistan, bringing the total disbursements under the program to about $4.2 billion.
Meanwhile, the International Monetary Fund (IMF) has agreed to revive a bailout package for Pakistan, providing timely relief as the high global price of energy imports pushes the cash-strapped country to the brink of a payment crisis.
An IMF statement late Wednesday said its staff and Pakistani authorities had reached an agreement on policies under review of the global lender’s Extended Fund Facility (EFF) Program for Islamabad. The staff-level agreement, if approved by the IMF board, will bring total disbursements under the program to about $4.2 billion.
Finance Minister Miftah Ismail said in a tweet that Pakistan “will soon receive” an initial tranche of $1.17 billion.
“Pakistan is at a challenging economic juncture. A difficult external environment combined with procyclical domestic policies fueled domestic demand to unsustainable levels,” said Nathan Porter, who led the IMF team in weeks of negotiations with Islamabad.