Pakistani rupee nosedives against US dollar amid political crisis

People exchange foreign currency at a shop in Karachi, Pakistan, on April 7, 2022. (AFP)

• Dealers warn country may witness Sri Lanka-type situation if currency devaluation continues
• US dollar has appreciated by more than 51 percent against the rupee since August 2018

KARACHI: Pakistan’s national currency on Thursday hit a new historic low of Rs188.18 against the US dollar amid political turbulence, diminishing foreign exchange reserves and a stalled International Monetary Fund (IMF) loan facility.
The Pak rupee went above Rs189 in the morning trade session as the country’s top court resumed the hearing of a case focusing on the dismissal of a no-confidence vote against Prime Minister Imran Khan which led to a constitutional and political crisis in the country. As the day progressed, however, the rupee bounced back a bit and closed at Rs188.18.
The US dollar was trading at Rs189.25 for buying and Rs190.50 for selling in the open market during the day.
According to the Exchange Companies Association of Pakistan (ECAP), the Saudi Riyal traded at Rs50.20 and Rs50.70 while Arab Emirate Dirham hovered around 51.30 and 51.80 for buying and selling, respectively, on Thursday.
“If corrective measures are not taken, the freefall of Pak rupee may lead the country to a situation like Sri Lanka which is witnessing price hikes and shortages of essential goods like petroleum products,” Zafar Paracha, ECAP general secretary, told Arab News.
Pakistan’s national currency has witnessed a massive decline against the US dollar since Prime Minister Imran Khan took oath as the country’s 19th prime minister in August 2018. The central bank’s statistics reveal the dollar appreciated more than 51 percent from Rs124.24 on August 20, 2018, to Rs188.18 on April 7, 2022.
As the Supreme Court started its proceedings on Thursday to determine the constitutionality of the speaker’s ruling to dismiss the no-trust vote against PM Khan, traders said the market was hoping for an early verdict.
“We are waiting for the judgment of the Supreme Court of Pakistan that is likely to set the future course of the currency market,” Paracha said, adding: “The judgment may bring some stability to the currency market in the days to come because at least there will be some form of government [in the country].”
Analysts warned the US dollar could go up to Rs200, increasing inflationary pressure and foreign debt burden, if the political chaos continued any further.
“The rupee devaluation will significantly increase the debt component and imported inflation,” Aadil Jillani, head of the Economic Division at the Trust Securities and Brokerage, told Arab News, adding the situation would also have a negative impact on the cost of doing business in Pakistan.
“In addition to that, it will also downgrade Pakistan’s ratings and massively hit its current account deficit and deplete reserves,” he continued.
Jillani added the political situation in the country was calling into question the state’s ability to continue policy reforms, run simple administrative matters and secure external financing.
Analysts agreed the national currency was also under pressure due to the stalled IMF extended fund facility.
Pakistan and the IMF were negotiating to complete the seventh review of a $6 billion loan program before the political crisis began.
The discussion stalled as the international lending agency expressed concerns over a relief package of about $1.7 billion announced by the government which included freezing of petroleum prices and cuts in electricity tariff in response to rising inflation.
The fund has said it will resume the review process after the new government is formed.
“The Fund looks forward to continue its support to Pakistan and, once a new government is formed, we will engage on policies to promote macroeconomic stability, and enquire about intentions vis-a-vis program engagement,” Esther Perez Ruiz, the IMF’s resident representative for Pakistan, said in a statement on Monday.