Up it goes seems to be the sentiment of the people after the dollar crossed the Rs193 mark in the interbank market, reaching a new all-time high after the rupee was devalued by Rs1.25.

The greenback was being sold at 193.1 in the interbank market at the start of the day, according to the Forex Association of Pakistan.

There are two trade markets, open and interbank, which run on confidence. The rates of currencies are one to two rupees less in the interbank market to support the trade and investors. Pakistan’s prevailing political situation, impending International Monetary Fund programme, rollover of Chinese loan, and talks with Saudi Arabia and the United Arab Emirates are major contributing factors to “market confidence”.

China is expected to reply next week on its decision to roll over $3.2 billion worth of loans. It is expected to support Pakistan’s import bill that currently stands at $6 billion against $1.9 billion of the country’s export.

Beijing, which brought the corridor project to Islamabad, has the highest investment in the country’s stock market.

Economist Khurram Schehzad said the increase in dollar value against the rupee was expected and a little increase has also been seen in the international market because the interest rate on the dollar was very low…almost zero in the wake of the coronavirus pandemic.

In a conversation with Aaj News, the founder of financial consultany Alpha Beta Core was asked about the increase in dollar value against the rupee and its impact.

“When the coronavirus hit the world two-three years ago, the central banks of the western countries provided loans on zero interest rates to support other economies. However, the money lending has caused inflation and when the world came out of the pandemic western countries – including the US Central Bank – increased the interest rate,” Schehzad, who is the board member of the finance ministry’s Privatization Commission.

Such decisions appreciated the value of the dollar however they devalued other currencies – including the Pakistani rupee.

The country’s political prevailing stability is also a reason for it, Shehzad said, adding that the country’s economy was weak. “We have almost 1.5 months of reserves left for our imports,” he said and credited the incumbent government for approaching IMF, Saudi Arabia, and UAE.

“It seems in the next 15-20 days dollar will have stability in the local market because of developments in such meetings.”

The curtailing of subsidies is a bone of contention between the government and the IMF, which is due to give a statement during its meetings with Pakistan on May 18. Pakistan has sought $8 billion worth of loans from the global lender, while fears mount the country is following Sri Lanka’s trajectory that last month got defaulted on the entire $51 billion external debt.

Islamabad has now reserves supporting two to three months of import bills. Remittances – including the money received by freelancers, crossed the monthly mark of $3 billion for the first time, the state bank said on Friday. “Cumulatively, at $26.1 billion, remittances grew by 7.6 % in the ten months of FY22 compared to last year,” read the statement.

Former president Asif Ali Zardari on Wednesday hinted at privatizing the state-owned entities to support the economy and welcome foreign direct investment. But, he also stressed the need for keeping the larger share and decision making powers.

The governments have been trying to privatise Pakistan International Airlines and State Life after a foreign consortium bought steel mills.

The Roshan Digital Account, launched in the PTI government, has managed to attract $4 billion dollars from overseas Pakistanis. Least to mention, this account also feeds the country’s expenses. Such accounts provide innovative banking solutions for millions of expatriates, including Non-Resident Pakistan Origin cardholders, seeking to undertake banking, payment and investment activities in Pakistan.

Business Recorder Research Head Ali Khazar Aslam, who was also been asked to comment on the interbank trade, also agreed with Shehzad that the current political situation has impacted the dollar value. He also linked the ongoing stock market development with the PML-N leadership’s visit to London to meet former premier Nawaz Sharif and their decision on the economy.

“They [government] decided anything yet, leading to lack of confidence in the market,” he said, highlighting the importance of the IMF programme to support the ailing economy.

Impact

The direct impact of the rupee devaluing will result in increased oil prices which will eventually jack up the inflation rate because fuel import is the biggest chunk of the country’s import bill. And, the Russia-Ukraine war, which disturbed the oil prices, is not showing any signs of slowing down.

Electricity, food, and fares are going to be high if such a trend continues. Like other parts of the world, the country is also feeling the economic impact of the coronavirus pandemic.