Pakistani rupee sinks to new low of 150/dollar as IMF bailout conditions begin to bite

Pakistan’s economy is on the brink of collapse, and the IMF sanctioned a $6 billion loan last week on the condition that the rupee be left to perform freely.

File image of Pakistan Prime Minister Imran Khan | @ForeignOfficePk | Twitter

New Delhi: The Pakistani rupee touched a record low of Rs 150 per US dollar Friday, increasing the pressure on Prime Minister Imran Khan to stabilise the country’s economy and tame its spiralling currency.

The day before, when the value had touched Rs 148 to the dollar in the inter-bank market, Khan had asked currency dealers to lower the rate. The government had also informed dealers that stringent action would be taken against those who were found selling dollars at expensive rates.

“The Pakistani government has long kept currency under its control while manipulating its real value. But now it is no longer possible with the IMF watching over it,” a high-ranking Indian official told ThePrint, requesting anonymity.

The official said one of the main conditions that the IMF had put on Pakistan before it agreed to grant a $6 billion loan to Islamabad last week was to keep the rupee performing “freely as per the market conditions”. This loan, the 13^th of its kind, was granted to save Pakistan’s economy from collapsing.

According to diplomatic sources, Khan’s government is now planning measures such as raising interest rates and announcing massive austerity measures to stabilise the economy.

Bleak outlook

Abid Qamar, spokesperson for Pakistan’s central bank, said in a statement Thursday that the value of the rupee reflects demand and supply conditions in the foreign exchange market, and that it would help in “correcting market imbalances”.

The IMF had said on 12 May that a “market-determined exchange rate” would help the Pakistani economy.

However, renowned Pakistani economist Kaiser Bengali, the former adviser to Sindh and Balochistan, recently said in a lecture to the Arts Council of Pakistan that “the World Bank and the IMF have taken over total control of the Pakistani economy and have established their stranglehold on it”.

Meanwhile, the Pakistani government has announced the creation of a body headed by PM Khan’s adviser on finance Hafeez Shaikh to only focus on the rupee and its impact on the economy.

The committee has been asked to ascertain whether the provision of carrying $10,000 for anyone travelling abroad from Pakistan can be slashed to $3,000.

Amit Bhandari, fellow at Mumbai-based think tank Gateway House, predicts a bleak future for the Pakistani rupee.

“I can clearly say that the Pakistani rupee will come to a level of Rs 200 against the dollar in the next three years. The IMF had made it clear to Pakistan before the loan was signed that its central bank has to let the rupee flow freely,” said Bhandari, who analyses the Pakistani economy closely.

 

Reforms needed

Bhandari added that the Pakistani government has kept a fixed exchange rate to keep the currency under control, and said while foreign remittances by Pakistani expatriates that amount to around $20 billion may help in stabilising the dwindling economy to some extent, as a long-term measure, Islamabad has to gradually cut down on its military spending.

Meanwhile, Nisha Taneja of the Indian Council for Research on International Economic Relations (ICRIER) said Pakistan needs reforms.

“To be able to negotiate the package with the IMF, Pakistan needs to demonstrate that it can take reform measures. Devaluation is only one of the many steps that Pakistan has taken. Raising tax revenues will be far tougher for the government.”

Taneja, who has been spearheading efforts to normalise trading relations between India and Pakistan, added: “A slew of other reform measures need to be implemented if Pakistan is negotiating a loan with the IMF.”