Pakistan’s economy at risk of collapse; Pak rupee reaches all-time low after devaluation

Already a lot of industries have closed down, and if those industries don't restart soon, some of the losses will be permanent

PGurus Newsdesk

January 27, 2023

Already a lot of industries have closed down, and if those industries don't restart soon, some of the losses will be permanent

Pakistani rupee hits a record low of 255.43 against the US dollar

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, Geo News reported. According to the report, rolling blackouts and a severe foreign currency shortage are making it difficult for businesses to continue operations.

Following the 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, as per media reports.

Shipping containers full of imports are piling up at ports as the buyers are unable to secure the dollars to pay for them, it added, Geo News reported.

With a mini-budget expected within the next eight to 10 days, the tariffs on gas and electricity might also witness an increase and more taxes might be imposed – also the global money lender’s conditions.

“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 the UK newspaper.

“Already a lot of industries have closed down, and if those industries don’t restart soon, some of the losses will be permanent,” said the founder of Macro Economic Insights, Sakib Sherani, Geo News reported.

Citing analysts, Financial Times reported that Pakistan’s economic situation is “becoming untenable”, and may be in a similar situation as Sri Lanka if the situation persists. The publication 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.”

Pakistan’s Planning Minister Ahsan Iqbal told the FT 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.

The analyst said that the government’s steps are helping the market recover and increasing the confidence of the investors – who were in a difficult position due to the uncertainty over the revival of the International Monetary Fund’s (IMF) programme.

The Pak rupee posted its biggest single-day decline against the dollar in more than two decades, after rapidly depleting foreign exchange reserves and an unyielding IMF forcing the government to relax its grip on the currency, The News reported.

Following the government’s decision to end its control over the rupee-dollar exchange rate as part of the IMF condition, the Pak currency slid 9.61 percent, or Rs.24.5, to a record low of Rs.255.43 against the US dollar compared to Wednesday’s close of Rs.230.89.

The over 9 percent decline was its highest since October 30, 1999, when the currency had slumped 9.4 percent.

“The State Bank of Pakistan is seemingly adjusting the exchange rate to the market rate – closer to open market to address the widening difference between the official and open market rate and to curb the flow of dollars through the informal market,” said Saad Ali, a capital market expert, The News reported.

[With Inputs from IANS]

PGurus is now on Telegram. Click here to join our channel and stay updated with all the latest news and views

For all the latest updates, download PGurus App.