Pakistan’s economy: Cash-strapped Pakistan’s currency fell to a record low of Rs 255.43 in a largest single-day decline, against the US dollar in the interbank market on Thursday. This came after the government relaxed its grip on the exchange rate to win much-needed loans from the International Monetary Fund (IMF).
State Bank of Pakistan data indicated that the rupee plummeted by Rs 24.54 or 9.61 percent to Rs 255.43 from Wednesday’s market closure of Rs 230.89.
Economy at risk of collapse
Meanwhile, British publication Financial Times has warned that Pakistan’s economy is at risk of collapse with the government’s “failure to revive” an International Monetary Fund (IMF) deal.
The report says, businesses are finding it increasingly to continue operations amid rolling blackouts and a severe foreign currency shortage, according to Geo News.
The report further said, shipping containers full of imports are piling up at ports as the buyers are unable to secure the dollars to pay for them.
Repatriation of dollars blocked
“Associations for airlines and foreign companies have warned that they have been blocked from repatriating dollars by capital controls imposed to protect dwindling foreign reserves. Officials said that factories such as textile manufacturers were closing or cutting hours to conserve energy and resources. The difficulties were compounded by a nationwide blackout on Monday that lasted more than 12 hours,” reported Financial Times.
The founder of Macro Economic Insights, Sakib Sherani, said, “Already a lot of industries have closed down, and if those industries don’t restart soon, some of the losses will be permanent,” Geo News reported.
Situation like Sri Lanka
Financial Times cited analysts as saying that Pakistan’s economic situation is “becoming untenable”, and somewhat like Sri Lanka if the situation persists. It also warned that if the “situation persists” then the country may default in May.
“Every day matters now. It’s simply not clear what the way out is,” said Abid Hasan, a former advisor to the World Bank, adding, “Even if they get a billion [dollars] or two to roll over, things are so bad that it’s going to be just a band-aid at best.”
Imports reduced drastically
FT quoted Pakistan’s Planning Minister Ahsan Iqbal as saying that the country has “drastically” reduced imports in an attempt to conserve dollars.
“If we just comply with the IMF conditionalities, as they want, there will be riots in the streets. We need a staggered programme… The economy and society cannot absorb the shock or cost of a front-loaded programme,” Iqbal said.
Following the Pakistani rupee’s devaluation in the open and interbank markets, the benchmark index of the Pakistan Stock Exchange (PSX) rallied and gained by more than 1,000 points, Geo News reported.
Commenting on the development, Arif Habib Limited’s Head of Research, Tahir Abbas, said that the rupee’s steep fall has triggered a positive sentiment in the market.
“The driving factor behind the market is the rupee’s market-based exchange rate. This has helped clear the uncertainty that was surrounding the investors,” Abbas said according to Geo News.
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