ISLAMABAD – Pakistan exchange rate has been depreciating in the interbankand open market. Experts say that this trend may continue till pressure onthe current account deficit eases.
Sources in the Finance Ministry said that PKR would settle at Rs 122 perdollar after reaching its peak of Rs 135 within the next few days. Therupee will stabilize at Rs 122-123 which is its fair value, but only afterthe prevailing uncertainty fueled by the present politically highly chargedatmosphere ends, which would be after the election results are out, theycontended.
A well known economist, speaking over the condition of anonymity, said thatthe rupee may continue to depreciate till it reaches Rs 140 to the dollaras the currency’s erosion is a symptom of the historically high currentaccount deficit facing the country today.
He added that in fiscal year 2007-08 the current account deficit rose to 9percent of GDP which, in turn, compelled the PPP administration to take abailout package from the International Monetary Fund (IMF) for balance ofpayment support and devalue the rupee against the dollar by 33 percent –from Rs 61 to Rs 80 per dollar.
He pointed out that the situation today is worse and the current accountdeficit has reached its historical highest level at $18 billion on 2017-18and therefore the rupee is unlikely to stabilize below Rs 140 per dollar.
He further added that other major reasons for the depreciation, besideshigh current account deficit, is that the rupee was kept unnaturallyovervalued during the last five years. He suggested three ways to deal withthe situation:
cash margins must be imposed across the board by 30 per cent;cash providedto exporters against incentives through commercial banks;deal withunder-invoicing from China by reducing import duty.
Former Finance Minister Dr Salman Shah said that the rupee will stabilizeafter touching Rs 135 as exports are indicating some improvement. Howeverhe added that the situation would become clear after imports and exportsfigures are released by the State Bank of Pakistan (SBP).
He said the major reasons behind the rupee depreciation are acquiringunsustainable loans, approaching repayments, contraction in exports duringthe last few years and phenomenal increase in imports that led to wideningof the trade deficit and balance of payment problems.
If reserves are low and unable to absorb the pressure, local currencystarts to depreciate and unless measures are taken to increase exports andreduce imports, rupee erosion would continue, he added.
Dr Ashfaque Hassan Khan said that rupee depreciation is the result offlawed policies of the PML-N administration, which are being pursued by thecaretakers as well. He said that former finance minister Ishaq Dar kept theexchange rate artificially overvalued for four years by injecting $10billion into the market.
Khan added that it is hard to assess what value the rupee would stabilizeat but concluded that what is happening will have serious ramifications onthe economy.