KARACHI: Pakistan’s national currency on Friday closed the weekend session by hitting yet another all-time low of Rs228.37 against the US dollar, according to central bank data and analysts, despite assurances by the finance minister and central bank chief the country had sufficient foreign financing for the current fiscal year.
Pakistan's finance minister Miftah Ismail on Thursday vowed to stabilize the rupee against the greenback by the next month, saying all possible measures were being taken to stop the downward slide of the local currency. Murtaza Syed, the acting governor of the central bank, also told foreign investors this week that the country had $2.4 billion more than the required foreign financing for the current year.
Pakistan needs a total of $33.5 billion this fiscal year, while the available financing stands at $35.9 billion, according to a State Bank of Pakistan (SBP) presentation seen by Arab News.
However, the Pakistani currency has continued to lose its value despite assurances of the availability of ample liquidity. The currency, which started off the week at Rs215.20 against the greenback, has devalued by 8.25% in last six trading sessions to close at a record low of Rs228.37, down 0.68% on Friday.
Financial experts attribute the current jitters in capital markets to trade statistics, political uncertainty and the news flow.
“In a market-based exchange rate in Pakistan, the value of rupee is highly influenced by trade statistics, uncertainties in markets, and the news,” Dr. Khaqan Najeeb, former advisor to the Pakistani Ministry of Finance, told Arab News on Friday.
“Let us consider the most effective factor, the trade deficit, that clocked $4.9 billion in June... the petroleum products payments in May and June together remain elevated at about $6.2 billion and as some of the LCs (Letters of Credit) from past two months finalized in July and banks needed to cover their positions that exerted pressure in the interbank market on demand side.”
Pakistan and the International Monetary Fund (IMF) last week reached a staff-level-agreement that paved the way for the revival of the stalled $6 billion loan program. Subject to the final endorsement by the IMF board, the fund has agreed to disburse a $1.17 billion tranche to Pakistan.
However, the situation at the political front after the ruling Pakistan Muslim League-Nawaz (PML-N) party lost the Punjab by-polls has clouded the future of the IMF program, particularly its implementation of the key conditions.
“On the uncertainties, both the political situation as well as the IMF program conclusion by the IMF board on the 26th of August, which requires some of the conditions including the electricity price movement as well as the financing requirement of $4 billion to be covered by friendly countries, has kept the market little jittery,” Najeeb said.
“Lastly, the news on the international front, especially the downgrading of Pakistan’s outlook by Fitch and by other international agencies, which included Pakistan in the list of countries that may default, also contributed to the disorderly movement of markets.”
Fitch Ratings' revision of Pakistan’s outlook from stable to negative reflects a significant deterioration in the country’s external liquidity position and financing conditions since early 2022.
Experts said one of the important aspects of the disorderly movement in markets was the limited ability of the central bank to intervene only to a certain extent in the market-based exchange rate due to its meagre $9.3 billion foreign exchange reserves and commitment with the IMF.
However, analysts hope that some stability would return to the currency market from the next week.
“As soon as we get assurance of financing from friendly nations, the market would start cooling down and there could be a reversal to some extent,” Samiullah Tariq, research director at the Pakistan-Kuwait Investment Company, told Arab News.
“The gap between interbank rate and the rate at which importers arrange dollar privately for LCs payment retirement is now narrowing, which shows that the market would start stabilizing from the next week.”
Pakistan's stock market also remained volatile throughout the week, but closed bullish over the weekend after dipping to a 20-month low on Thursday. The key benchmark index closed at 40,077 points on Friday.
“Stocks showed recovery in the earnings season rally at the Pakistan Stock Exchange (PSX) as investor weigh strong data on $271 million foreign investment in June 2022 and easing political noise,” Ahsan Mehanti, chief executive officer (CEO) of the Arif Habib Corporation, said.
“Post-IMF agreement to release the tranche next month, reports of a surge in textile group exports in FY22 and a slump in global crude oil prices likely reducing economic crises played a catalyst role in bullish close.”
Pakistan’s weekly inflation, measured by the sensitive price index (SPI), has recorded a decrease of 0.22 percent after two months, according the data released by the Pakistan Bureau of Statistics (PBS) on Friday. However, inflation has increased by 32.82 percent on a year-on-year basis.
