The US dollar breached another record on Thursday as it rose past Rs207 in the interbank market owing to concerns over depleting foreign exchange reserves and ambiguity regarding Pakistan's deal with the International Monetary Fund (IMF).
According to the Forex Association of Pakistan (FAP), the greenback appreciated Rs1.45 from the previous day's close of Rs206.40 and climbed to Rs207.85 by closing time. On Wednesday, it had appreciated by Rs1.30.
In the open market, the dollar was trading at Rs208.5 today.
Asad Rizvi, former treasury head at Chase Manhattan Bank, outlined the rapid decline in the country's foreign exchange reserves as the main factor pressuring the rupee. "The urgency is to get the house in order per the IMF."
During the week ended June 3, liquid foreign exchange reserves of the State Bank of Pakistan declined by $497 million to $9.2 billion.
He highlighted that the government's measures of increasing the prices of petrol, electricity, and gas were not enough. "It will have to take more tightening measures in terms of abolishing subsidies, reducing the deficit, and imposition of additional taxes."
Rizvi further pointed out the need to resolve minor issues such as the 9 per cent tax to GDP ratio, 79 per cent GOP holdings, and 53 per cent advance deposit ratio so that the economy could get back on the track of stability.
On the other hand, Tresmark's research head Komal Mansoor said that the market would stay anxious until the IMF deal concluded. "That will also unlock other multilateral flows."
"It looks like the rupee may bottom out below the Rs210 level as many exporters are eager to look forward now,” she predicted.
Govt increases petrol prices to comply with IMF conditions
Meanwhile, on Wednesday, the government raised fuel prices by up to 29 per cent, removing fuel subsidies in an attempt to trim the fiscal deficit and secure critical support from the IMF. The programme wants Pakistan to take strict measures to control its fiscal deficit in the face of a balance-of-payments crisis.
At the press conference last night, Finance Minister Miftah Ismail said that the price increase was inevitable “to save the country from the default”. He regretted that the decision had become inevitable because of the “unreasonable decision” of the previous government to freeze prices for months.
Ismail pointed out that global crude oil prices were hovering around $85-90 a barrel when the previous government decided to renege on a just-concluded agreement with the IMF by removing taxes and reducing prices. This was despite the fact that it had committed in writing to impose Rs30 per litre petroleum development levy and 17pc sales tax on the entire price, meaning taxes of about Rs64 per litre.
Now the international prices have gone beyond $120 a barrel and edible oil prices also jumped 300-400pc. The minister said petroleum differential losses were causing Rs120 billion monthly loss to the government compared to Rs42bn monthly expenditure of running the entire civil government. “I have not seen such a devastation in the economy over the past 30 years."
The previous government neither signed contracts when oil and gas prices were at $6 nor created buffers for difficult times, he added.