After losing its value by Rs. 31.71 against the U.S. dollar last week, the Pakistani rupee continued its decline on Monday, plunging by another Rs. 7.03 in the interbank market at the close of day and trading at Rs. 269.63/dollar.
According to the State Bank of Pakistan, (SBP), the rupee depreciated by a further 2.61 percent on Monday, as the country reverts to a market-determined exchange after months of an unofficial cap imposed by Finance Minister Ishaq Dar, who kept claiming that the “real value” of the rupee was around Rs. 200/dollar.
The Exchange Companies Association of Pakistan (ECAP) said the persistent decline of the rupee was a result of a shortage of dollars in the market, adding that if the government could ensure the supply, the value would not have declined so precipitously. Speaking with media, a spokesman of the organization said the market uncertainty was making things worse, as people were avoiding remitting funds to Pakistan until the rupee had settled to a stable value.
The freefall of the rupee has narrowed the gap between the interbank and open market rates, with the dollar trading at around Rs. 270 in the open market. This, say currency experts, should help end a currency black market that had developed in recent months due to buyers and sellers getting much preferable rates from informal channels than commercial banks and exchange companies.
Pakistan is currently in the midst of a severe balance of payments crisis, with the central bank’s data showing its foreign exchange reserves have hit $3.7 billion, barely sufficient to cover even three weeks of imports. Promised inflows from “friendly” nations have yet to materialize, with authorities saying they have been linked with the revival of the IMF program, leaving the government with little choice but to fulfill “harsh” conditions, including higher utility tariffs and withdrawal of all subsidies.
Thus far, the government has appeared unwilling to implement the conditions required by the IMF, but the decision to return to a market-determined exchange rate is being seen as a sign of sincerity to completing the bailout program. On Sunday, the government likewise implemented a petrol and diesel price hike, further suggesting that the government is now willing to negotiate with the IMF and fulfill its conditionalities rather than continue its policy of trying to resist it. A team of the global money lender is set to arrive in Pakistan tomorrow (Tuesday) to continue discussions on the the ninth review, which has been pending since September 2022.