KARACHI: As Pakistan’s Prime Minister Imran Khan downplayed the impact of a devalued rupee by insisting that the conditions “should not panic anyone”, stakeholders and financial experts on Monday termed the move “worrisome” and “extremely disastrous” for the country.

On Friday, the rupee plunged to a historic low to trade at PKR 144, before gaining ground and closing at 138.64, even as it lost 3.4 percent against the US dollar. The country has devalued its currency around 32 percent since December 2017. 

Pakistan is negotiating with the International Monetary Fund (IMF) for a bailout program to support its external payment situation which is currently facing a nearly $12 billion deficit. The country’s central bank also increased its key policy rate to 10 percent on Friday.

Experts view both the moves as conditions for talks with the IMF which are scheduled to resume in January next year. However, according to the Pakistan media, Khan says the “devaluation should not panic anyone” because “positive economic policies of the government would ease the burden of the people”.

Senior economists, however, weren’t too convinced. “Indeed there should be worries. This step of the State Bank of Pakistan (SBP) at the behest of the government is disastrous for the economy. It will affect growth and give rise to inflation. Exports will be impacted too, as even the textile sector, the largest export earner, relies on imported cotton lint,” Dr. Ikram Ul Haq, a senior economist and an expert on taxation matters, told Arab News.

With the depreciation of the currency being touted as a step toward discouraging imports and encouraging exports, exporters, on their part, added a caveat. “Current devaluation of the rupee against the dollar is extremely disastrous for the nation because it increases the import bill of the country and also opens floodgates of inflation for the masses,” Jawed Bilwani, Central Chairman, Pakistan Hosiery Manufacturers & Exporters Association (PHMA), said.

A majority of the inputs used in the export of goods are imported, including cotton, which is available at an international price, dyes, parts, chemicals, and petroleum products. However, the devaluation would increase their cost. “It will have a negative impact on exports and increase the import bill of the country,” he added.

Exporters said the foreign buyers, too, are demanding a discount due to the devalued Pakistani currency. Previously, when the government depreciated the rupee by 5 percent, foreign buyers demanded discounts for new orders due to devaluation and took advantage of the exporters.

“Buyers are not happy with the devaluation because it increased the products’ price”, Shabir Ahmed, Chairman of Bedwear Exporters’ Association of Pakistan, told Arab News.

Shabir Ahmed says the devaluation has created panic everywhere, from the stock market to the currency and export market. “This all is being done in the name of export culture which does not exist,” he added.

“Government should end the panic and ensure stability in the market which is the only way out,” Ahmed said. “Record devaluation of the rupee against the dollar would have a negative impact on all sectors of the economy,” Ahmed Hassan Moughal, President, Islamabad Chamber of Commerce & Industry (ICCI), said.

He added: “The manufacturing sector is importing 60 percent raw material while Pakistan is also importing fertilizers, food items, oil, machinery, and many other items. The abrupt devaluation of the rupee would further enhance the cost of doing business, increase inflation, and further slowdown economic activities.”

However, supporters of Khan’s government held the previous administrations responsible for the current economic woes.

“The new government is facing the ire of the public for criminal negligence of its predecessors. With the dollar demand-supply gap rising, what happened in the foreign exchange market today is a core result of the last five years of depleting Foreign Direct Investment and lack of a focus on enhancing exports, particularly our agricultural and dairy produce wherein lies a huge potential to improve the strength of our rupee,” Faisal Ahmad Jafri, a renowned blogger, wrote in a blog which was posted on the Pakistan Tehreek-e-Insaaf’s website.

Pakistan’s economy is expected to slow down further with the central bank predicting the growth to be slightly above four percent during the current fiscal year FY19.