The rupee is at an all-time low against the dollar.
The Pakistani rupee fell for the 14th consecutive session on Wednesday, reaching a new historic low versus the US dollar amid a currency shortage in the country.
The rupee has been one of the worst performing currencies in emerging economies, falling about 9% so far this month due to a variety of causes.
According to Investing.com, the rupee fell to 240 in intraday trade after losing 1.09 from the previous session’s closing of 238.91 in the interbank market.
Previously, on July 28, 2022, the rupee reached an all-time low of 239.94. The rupee stayed unchanged in the open market, trading at 245.40 per dollar.
Floods have affected 33 million Pakistanis, caused billions of dollars in damage, and killed over 1,500 people, raising fears that Pakistan may fail to meet its debt obligations.
Pakistan was able to resume its IMF programme and receive a $3 billion rollover from Saudi Arabia, but the record floods have overshadowed everything else, causing an economic blow of at least $18 billion, which could rise to $30 billion.
Heavy flooding and the relaxation of an import ban have put strain on the local unit, but the country is appealing for assistance from friendly countries and multilateral and bilateral institutions to help it overcome the ongoing economic crisis.
“[There is] a bigger demand than supply; floods have contributed to the import bill; relief hasn’t arrived in cash yet, but once it does, the liquidity position will ease,” said Samiullah Tariq, head of research at Pak-Kuwait Investment Company.
After inflation reached its highest level in nearly five decades, a weaker currency may exacerbate pricing pressures. The country is also dealing with the consequences of a series of catastrophic floods and requires additional funding in addition to the IMF’s $1.1 billion loan to avoid default.
Floods and their negative impacts on the country’s external account are to blame for the currency’s recent decline.Crop losses will now have to be compensated for through imports and weak external flows, which have remained low since the IMF agreement was signed.
The IMF loan tranche of $1.1 billion did help Pakistan improve sentiment, keeping the government from default. However, larger arrivals from Middle Eastern countries were expected to follow.
According to observers, these inflows have yet to arrive.Saudi Arabia, the United Arab Emirates, and Qatar have pledged Pakistan $9 billion in investments and loans during the last several months.
While Saudi Arabia has already extended a $3 billion deposit due in December as part of that one-year assistance, the three nations have yet to release any new investments and have not set a schedule for when they expect to do so.
The government is concerned about the rupee’s fast decline and is considering measures to stabilise the foreign exchange market. To halt the rupee’s dramatic drop, the State Bank of Pakistan recently issued a show-cause notice to eight banks for selling dollars at prices higher than the current market rate, Finance Minister Miftah Ismail disclosed over the weekend.
“The IMF loan was more about sentiment than anything else, and it was expected to be followed by inflows from other friendly countries,” said Sana Tawfik, an economist with Arif Habib Ltd. in Karachi.”These things were supposed to happen, but we haven’t seen any inflows yet.”
