The rupee crumpled against the US dollar on Saturday, as the greenback reached an all-time high in the interbank foreign exchange market.
Breaking all earlier records amid increasing political instability and economic challenges, Pakistan’s currency dropped to a new low against the US dollar. On Saturday, the price of one dollar closed at 228.3652 rupees, the highest level in the country’s history.
The interbank closing exchange rate for the US dollar and the Pakistani rupee is provided daily by the State Bank of Pakistan (SBP). Meanwhile, forex.pk, Pakistan's largest currency rates portal, on Sunday morning placed the US dollar (USD) to Pakistani rupee (PKR) purchase rate at 230 as per the Pakistan open market.
Forex stated: “Monthly USD to PKR fluctuation during the last 30 days shows an increase by PKR 20.5 and 9.79 in terms of percentage; Yearly performance of US Dollar to PKR difference shows 1 US Dollar increase by PKR 68.05 and 42.02% in value.”
This plummet of the rupee against the dollar also has been credited with the country's high import bill as well as the delay in the release of a crucial $1.17 billion payment from the International Monetary Fund (IMF) to Islamabad.
Troubled economy
“[T]he negative analysis of the country’s economy is not correct; the IMF is completely satisfied with us.”
Murtaza Syed, acting governor, State Bank of Pakistan
The Pakistani rupee has maintained its collapse, mainly because the US dollar has been gaining strength against other major global currencies for the past few months.
Pakistan's troubled economic condition can be seen by the fact that the value of the US dollar has been approaching its record-high level for several days.
In addition to the dollar, the prices of the euro, British pound, and Saudi riyal also have increased against the rupee, which will put an additional burden on the country's economy.
Under the agreement between the government and the IMF, the prices of petroleum products have significantly increased. Due to this inflation, the life of the average Pakistani has been made more difficult, since the payment of utility bills is more difficult. So, Islamabad may receive more IMP loans, making stability of the economy and government affairs possible; but, with the continuous delay of government decision-making, things are getting more complicated.
Pakistan is dealing with what is considered the worst phase of political and economic chaos since former Prime Minister Imran Khan was removed from power in April through a parliamentary vote on a no-confidence motion.
However, Murtaza Syed, acting governor of the State Bank of Pakistan (SBP) on Saturday said in a statement that “the negative analysis of the country’s economy is not correct; the IMF is completely satisfied with us.”
“We cannot be compared with Sri Lanka or other default countries,” he added.
Syed further said that the staff-level agreement has been reached with the IMF, and that this is a great accomplishment. After approval at the staff level, the agreement must be approved by the group’s board.
He also said that “our economic policies are in the right direction, there is talk of financing from friendly countries, and IMF has experience in settling matters with countries like Pakistan.”
The Media Line spoke to several experts regarding the devaluation of the Pakistani rupee and the declining economic situation of the country.
Michael Kugelman, a Washington-based South Asia Senior Associate at the Wilson Center, told The Media Line that “Pakistan’s economy is at a near breaking point. Assuming the new IMF deal is finalized, Pakistan will get some temporary breathing room, but that won’t fully address the perfect storm of soaring debt, rapidly declining foreign reserves, inflation, and political dysfunction and uncertainty. It’s not a good scene.”
Kugelman said that “the economic and political crises are interrelated. The economic crisis weakens the government politically and raises the political costs of pushing forward with austerity and other economic necessities.”
Kugelman further told The Media Line that “the political crisis worsens the economic crisis because it distrusts the government, and the climate of political instability and uncertainty makes investors and other potential donors uneasy about providing funding.”
The Media Line spoke with Saddam Hussein, a research economist at The Pakistan Institute of Development Economics (PIDE), a premier economic/research think tank and degree-awarding institute in Pakistan. It was founded in 1957 by the government of Pakistan and is located in the vicinity of Quaid-e-Azam University in Islamabad.
Hussein told The Media Line that “the state of Pakistan’s economy is directionless. I would rather call it the economy of uncertainty. A vehicle set on a journey without knowing its destination.”
Hussein told The Media Line that, “on the political landscape, things are unfolding with every passing day not without plot twists. This has caused the economy to take a back seat, which certainly should not be the case.” Hussein added that “this also explains why Islamabad is not being able to secure good finances to plug-in as a Band-Aid. Hence, not getting the monetary oxygen even for a short while is acting like a domino effect for the already ailing economy.”
Hussein also told The Media Line that, in addition, “the country is bearing the brunt of external shocks as well coming from the Black Sea region: the Ukraine crisis, instigating fuel and food crises.”
He added: “Oil has the major share in Pakistan’s import bill. So, one can imagine the ripple effect it is sending across all the sectors of the economy. Plus, the food crisis is hitting the middle and lower classes hard and frustration is on the rise.”
Hussein suggested that Pakistan can deal with the current situation in two ways: “either stabilize itself politically or de-link politics from economics, which PIDE has been proposing for a long time, with a blueprint. Afterwards, it has to take on the reforms with clarity of vision and across-the-board political consensus.”
Pakistan is in “a tight situation on all fronts. Political instability has complicated a path toward a stable economy,” Hussein added. “Default threats are echoing from far away, … if this state of affairs persists then the situation can get worse in no time.”
“The good news is that it is not for the first time that Pakistan is so unstable on the political front, surging inflation and the rupee taking a nose dive. It has happened before as well. So, there is hope that with a bit of political certainty, things will get better,” he said.
Dr. Muddasar Rasheed Khawaja, associate professor of Economics at COMSATS University in Islamabad, told The Media Line that “Pakistan’s political turmoil is having a major impact on the country's economy, which is already in feeble condition.”
“The unrest has wreaked havoc on all economic fronts,” including the dollar hitting new highs against the rupee, further damaging the country’s financial state,” he added.
Khawaja also told The Media Line that: “Pakistan’s $30 billion yearly remittances are totally consumed to finance imports. Having a direct impact on the current account deficit, this continues to surge. Further delays in securing an IMF deal will worsen the economic condition.”
He stressed that Pakistan must “take necessary steps in order to achieve economic stability, like increasing the export production and rebate tax on export industries, controlling the current fiscal deficit of this budget, and huge tax collection, especially from the people who have been out of tax net in the past.”
Khawaja also proposed that “the coalition government must hold general elections to get a fresh mandate, as it is very weak to enforce any large-scale, long-term economic policies.”
Adeeb Ul Zaman Safvi, a Karachi-based defense analyst, told The Media Line that “no doubt, Pakistan’s political and economic stability is sliding down toward default.”
He claimed that “the US-controlled International Monetary Fund and the World Bank will maintain their stranglehold on the last rung of the ladder and keep it breathing to survive.”
Safvi further told The Media Line that “Pakistan is the only Muslim nuclear power and the solo aim of economically weakening Pakistan is to freeze its nuclear assets.”
“To preserve its regional interests, the US will never allow Pakistan to be economically viable and a strong nuclear power in the international arena,” Safvi added.
Safvi also said that “under CIA supervision, the regime change has not been settled yet due to the unexpected response of the populace. The price hike of daily-use commodities and petrol, and the electricity tariff has brought the people back on the roads.”