Pakistan’s Rupee Remains Under Pressure and Things Won’t Change Anytime Soon

Pakistan’s rupee may have ended its historic fall but the currency remains under pressure

with liquidity shortages disrupting the foreign exchange market as evident from the slumping rupee and the widening gap between interbank trade and open markets.

 

The IMF s bailout package ensured that the currency did not continue falling but for it regain strength it needs the promised $ billion from ‘brotherly Gulf countries’ in ‘safe deposits’ to help shore up the State Bank’s dwindling reserves.

 

The exchange rate has also been impacted by recent market anxiety “instigated by surging headline price inflation that spiked to its 47-year high of 27pc last month, as well as the ongoing catastrophic floods that have caused enormous economic losses across the country and will likely further decelerate GDP growth in the near to medium term against the pre-flood IMF projection of 3.5pc for the current fiscal. Recessionary pressure building up in Europe and the US is also likely to hurt growth in countries like Pakistan.”

 

Finally, as an editorial in Dawn notes: “While the nation’s economic fundamentals remain weak, the deepening political uncertainty too continues to rattle the currency markets. Since the ouster of Imran Khan, the rupee has shed almost a quarter of its value in interbank trade. The rupee will continue to tumble against the dollar unless the country gets large cash injections in loans and flood-related aid from both multilateral agencies and bilateral lenders. With the country projected by the IMF to require external financing between $31bn and $39bn a year till FY26 to avoid default, the rupee’s road to stability and sustained recovery will be a long and arduous one.”

Author: Zahid Khan

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Author: Zahid Khan