Alert Sign Dear reader, online ads enable us to deliver the journalism you value. Please support us by taking a moment to turn off Adblock on

Alert Sign Dear reader, please upgrade to the latest version of IE to have a better reading experience


Budget deficit to shake exchange rate

June 01, 2012

KARACHI, June 1: Huge budget deficit will once again trigger the inflation and devalue local currency as the country witnessed during the current fiscal, said experts while commenting on the deficit on budget.

The budget mentioned a deficit of Rs1185 billion for the year 2012-13. Analysts and experts said during the current fiscal the government was expecting to meet the deficit through borrowing from abroad but failed and put the local currency under immense pressure.

The pressure with an inflation of about 12 per cent devalued the local currency which finally lost is weight against the US dollar.

“We are witnessing a steep fall in the value of the local currency, reflecting the severe problem of foreign inflows while each day a record is being set against the US dollar,” said Malik Bostan, Chairman Exchange Companies Association of Pakistan.

The rupee is at lowest level these days and currency experts feel that it may continue to fall unless concrete steps are not taken to stop this shaking exchange rate.

Atif Ahmed, a currency dealer in the inter-bank market said that there is an immediate need is to deal with the IMF and halt the falling exchange rate.

“The country would not be able to get dollar for its budgetary support unless the IMF agrees for lending,” he said. The IMF stopped lending Pakistan under the Standby Agreement on ground of massive fiscal deficit and mismanagement.

Most of the currency experts and dealers were firm that no dollar support would be available to the country unless it relations with the United States were normalised.

However, it was also observed that the minister of finance did not come out with any alternative to bridge the huge gap between supply and demand of the dollar.

“There is a clear way of currency swap which is successfully operational in many countries. Pakistan should deal with the Middle Eastern countries for currency swap as this will ease pressure on the import bill of oil,” said Bostan.

Pakistan imports most of its oil from Middle East but the trade is hugely surplus in favor of the oil exporting countries. Pakistan has a currency swap agreement with China and Turkey but the amount is not significant.

Currency swap with oil exporting countries would help Pakistan to reduce its trade deficit with them and save dollars as the oil import bill is the largest one and could be around $13 billion at the end of this fiscal.

“There is no remedy in the budget to support the rupee. It seems that the rupee may hit Rs100 per dollar if it continues to fall with the current trend,” said Anwar Jamal, a currency dealer in the open market.