KARACHI: As Pakistan and International Monetary Fund (IMF) are closing on the deal for possible bailout program, the national currency Pak Rupee is slated for further devaluation though expert see no immediate need for abrupt measures.
The interbank exchange rate hit all-time low of PKR 139.50 before closing at PKR 139.39 against US dollar that closed at PKR 139.40 on Monday. However, the currency lost in open market to PKR 139.70 against greenback.
“The Real Effective Exchange Rate (REER) of PKR presently stands at 103 and has come down from a high of 127 during May 2017 as a consequence of PKR depreciation of 24 percent since December 2017. REER (which is inflation adjusted-trade weighted) at 100 means currency is trading at its fair value,” Samiullah Tariq, head of research at Arif Habib Limited (AHL), told Arab News.
However, Tariq added that “while the foreign exchange market does not signal need for abrupt depreciation at the moment, our June 2019 closing target for the PKR/USD parity at 147/USD remains intact.”
“The REER tells us about the exchange rates of our exporting countries and inflation rate which at the current is fairly valued means Pak Rupee is where it should be against dolla,r, Khurram Schehzad, senior financial analyst and CEO of Alpha Beta Core — a financial advisory firm — said.
However, Schehzad added that “if the inflation surges then there are possibilities that it could hit PKR 145 against dollar but there are not place for massive devaluation.”
The dealers say that during last week PKR 0.60 have been registered. “The open market follows interbank market and similar changes were observed in there,” Zafar Paracha, General Secretary of Exchange Companies Association of Pakistan told Arab News.
“There are talks of rupee going down to around PKR 150 against dollar ahead of IMF program. Government should step in to clarify the position so that prevailing uncertainty subside for good,” paracha added.
Pakistan’s finance minister Asad Umar has said that “talks with the IMF over a bailout program have entered the final stages” as both sides narrow down the differences.
“We believe Pak rupee depreciation would not be the sticking point anymore with the IMF as Current Account Deficit has shrunk and SBP (State Bank of Pakistan) reserves are increasing,” Samiullah Tariq observed.
Pakistan Current Account Deficit during February 2019 declined by 72 percent and 59 percent year on year and month on month basis respectively. During the 8 months of current fiscal year FY19, the Current Account Deficit has reduced by 23 percent to reach $8.84 billion.
Although the Current Account deficit has narrowed down, Net International Reserves continue to deteriorate on the back of high debt repayments. Over the next twelve months, Pakistan has to pay $14.6 billion for debt servicing including $12.8 billion as principal repayment and $1.8 billion as interest, according to AHL research.