The Pakistani rupee tumbled as much as 8.7 per cent on Tuesday as the country eyed a bailout for a thirteenth time from the International Monetary Fund to avert a balance of payments crisis.
With this move, the Pakistani rupee a saw de facto devaluation for a fifth time undertaken by the Central Bank of Pakistan since December, and the currency losing more than a fourth of its value since the start of the year. This rout in the backdrop of dwindling forex reserves, which fell to $8.4 billion during the week ending Sept 28, its lowest in four years, to pay external debt servicing.
On Tuesday, the Pakistani rupee tumbled to a record low of 134 per dollar, down 8.7 per cent on day, before closing 4.31 per cent higher at 128.48.
“Earlier, there were talks of funding coming into Pakistan through the CPEC (China — Pakistan Economic Corridor), but off late there have been doubts on investment cuts. The IMF has also been approached by Pakistan to overcome the financial crisis. This ensuing economic instability has led to steep fall in the Pakistani Rupee,” Adeeb Ahamed, managing director at Lulu Financial Group told Gulf News.
The Pakistani rupee has shed 16 per cent of its value so far in the year, joining its peers with other emerging market currencies such as the Indian rupee, Argentine peso and Turkish Lira.
“Local news reports from Pakistan suggest that currency was intentionally weakened to fall in line with the strict conditions laid down by IMF. It is popular wisdom that IMF is not easy institution to deal with, especially when under financial distress,” Vijay Valecha, Chief Market Analysis, Century Financial said.
Analysts say Pakistan may approach for a bailout of $8 billion from the IMF, and according to Finance Minister Asad Umar said the talks may take place later this month. However, IMF’s chief economist Maurice Obstfeld said the country has not formally approached them for financial assistance. The country received a $6.7 billion loan from the IMF in 2013, under a 36-month program of the IMF’s Extended Fund Facility.
Earlier, the IMF agreed to bailout Argentina by giving them a massive $57.1 billion, but imposed tough conditions such as zero deficit for 2019 and limiting central bank’s actions to intervene in currency market.
IMF senior economist Harald Finger said the problems in Pakistan mostly stemmed from an overvalued exchange rate and excessively easy credit.
“The fast rise in international oil prices, normalisation of US monetary policy, and tightening financial conditions for emerging markets are adding to this difficult picture. In this environment, economic growth will likely slow significantly, and inflation will rise,” he said in a statement.
Washington, which recently suspended military aid to Pakistan over its alleged failure to crack down on the Taliban, has expressed concern about IMF funds being used to repay Chinese loans.