Pakistani currency on Tuesday sank to a new record low at Rs308 against the US dollar in the open market, down 1%, or Rs3, from the previous day’s close, according to the Exchange Companies Association of Pakistan.
Consequently, the gap between exchange rates in the open and inter-bank markets widened to a historic high of Rs21 to a dollar. The spread used to be in the range of Rs1-3 a couple of months ago. In inter-bank dealings, the central bank reported, the rupee inched down for the fifth consecutive working day, dropping 0.21%, or Rs0.59, to a 12-day low at Rs287.15 against the greenback.
Market talk signalled that the rupee was coming under increasing pressure from the widening gap between demand and supply of the US dollar in the currency market.
Meanwhile, Pakistan’s foreign exchange reserves have continued to deplete and reached a critically low level of $4.3 billion whereas a comparatively high amount of foreign currency is required to pay for imports and repay foreign debt.
Pakistan has to repay $3.7 billion in foreign debt by the end of June 2023. Besides, it needs another $3.7 billion each month to ensure seamless import of essential goods.
Currency dealers in the open market revealed that commercial banks were purchasing dollars in the kerb market to settle the international payments made through credit cards by their clients.
Besides, people are buying the Saudi riyal and US dollar for expenses during Hajj and Umrah pilgrimages. Experts emphasise the government must persuade the International Monetary Fund (IMF) to resume its $6.7 billion loan programme as well as urge friendly countries to commit fresh financing, which will mitigate the risk of default on external debt obligations.
The resumption of IMF programme will not only help Pakistan stave off looming default, but will also enable the country to attract financing from other global lenders and friendly countries. New financing will shore up the foreign exchange reserves as well as assist in reopening a partially closed economy.
Published in The Express Tribune, May 24th, 2023.
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