ISLAMABAD, 19 May 2008 — Is the Pakistani currency stabilizing? Initial, but still weak, indications are positive. Besides continued problems relating to external balances, an unsettled political instability and government transition has been influencing the currency since the Feb. 18 elections.
However, the Pakistani currency stabilized this weekend to Rs68.30/65 a dollar, compared to Rs68.70/69.50 on May 15. This is significantly better than the currency’s lowest of RS69.40/60 on May 9. Some deals, however were concluded in the range of Rs68.65 and RS69 to the dollar on May 16, bankers said.
The Pakistani currency declined to Rs70 a dollar on May 9, down 3.5 percent in a single day. The rupee’s depreciation on that day was 13 percent since January 2008.
But then the central bank stopped private Forex companies from sending out the UK pound, Euro and UAE dirham. It helped the Pakistani currency to recover to Rs66 to a dollar for a while, but the rupee again started its downturn.
Forex reserves were down $45 million to $12.20 billion on May 10. Forex reserves held by SBP declined to $9.874 billion from $9.926 billion a week earlier. The Forex held by commercial banks rose just a little: $2.360 billion from $2.230 billion a week earlier.
Bankers and financial market analysts saw very little impact of the fact that on May 15, Standards and Poor’s reduced Pakistan’s sovereign rating.
In doing so, S&P quoted Pakistan’s widening budgetary and trade deficit, to which is added the current “volatile political setting.”
S&P cut Pakistan’s sovereign rating to B from B+ and currency rating to BB from B+. S&P said the ratings were brought down in view of “the mounting pressure of expanding fiscal and external imbalances.” S&P also had noted that the rupee was hurt by Pakistan’s highest current inflation rate since the 1970s.
The government’s Federal Statistical Bureau (FSB) has just reported that the weekly inflation rate increased by 26.25 percent in the week that ended May 15 compared to the same period of last year.
The rise occurred on the back of “rising food and oil prices over the corresponding period of last year,” the FBS said.
Inflation, however, recorded a marginal increase of 0.78 percent during this week, compared to the previous week.
The rupee’s stability has been noticed even though the country’s external liabilities increased to $45.822 billion at the end of March 2008, up from $42.882 billion on Dec. 31, 2007, according to State Bank of Pakistan (SBP), the central bank. The statistics unveiled by the SPB this week, rebutted the outgoing government’s claims of “breaking the begging bowl.”
There are some plus sign on the domestic economic front from the new government, although the Pakistan People’s Party and Pakistan Muslim League (N) coalition fell apart on Tuesday.
It happened on the back of the Muslim League withdrawing its ministers, including the key Finance Minister Ishaq Dar, from the cabinet.
In this generally gloomy scenario, a plus point is a rise in home remittances sent by overseas Pakistanis. During 10 months to April 2008, the remittances rose to $5.319 billion.
It was up from $4.450 billion in the same period of fiscal 2007.
This 19.53 increase in inflows helped the rupee sliding less than it may have as demand for dollars has been rising on the back soaring prices of oil and commodity imports.
SBP said the remittances were topped by US, and followed by Saudi Arabia, UAE, other GCC countries, UK and EU states.
