KARACHI: As the rupee continues to depreciate faster than the market expected, doubts and fears are growing over the country’s economic health, especially its ability to pay the cost of importing essential goods in the coming weeks.
The exchange rate has been hit largely by a sharp decline in central bank foreign exchange reserves, which have shrunk to a nine-year low of $4.34 billion.
Political uncertainty and worrisome economic data have also dragged the best stock market down, falling 3.5% to close at 38,342.21 points on Tuesday.
A currency expert said the rupee was declining “despite being controlled by the National Bank of Pakistan (SBP).” On Tuesday, against the dollar he closed at 228.66 rupees.
The local currency made its last rally against the dollar on December 1, gaining 0.12% to close at 223.69. Recent declines have gained momentum, with the rupee dropping 1.25 over the last six sessions.
Amid a shortage of dollars, the spread between interbank and open market interest rates has widened significantly, severely hurting the economy and diverting remittances from legitimate banking channels to the gray market.
“The sharp decline in foreign exchange reserves is causing irreversible losses to the economy and undermining business confidence,” said a senior banker.
Bankers believe the country will soon find itself short of petroleum products, in addition to basic necessities such as food.
“We haven’t had any significant inflows since June when China provided $2.5 billion. Market currency expert Atif Ahmed said.
The SBP’s $4.34 billion reserve is worrying for the country, he said, noting that prevailing political uncertainty has destroyed its ability to obtain support from other countries and donor agencies. lamented.
The Treasury Department assured exporters that they would allow imports as inputs, but currency experts still called for improvement. “Immediate help is needed to save the country from default and people from situations like Sri Lanka,” said a currency dealer.
Exporters welcomed the decision, however, but said it came too late as it had lost a large share of the international market, especially Bangladesh, in textiles, which had increased its dominance over the past six months.
“We have received some orders from abroad, but we have already closed some factories due to lack of orders and no gas available,” said Shakil Kakvi, director of the local textile manufacturing and export sector. says. However, he said not all exporters have received orders.
Some experts also say the dollar shortage will lead to gasoline and diesel rationing in the next two to three months, ultimately pushing trade and industry, as well as the agricultural sector, which needs diesel during the harvest season. He suggested that it could even take a hit.
“The dollar is the key for Pakistan. We are all watching and waiting for the resumption of negotiations with the IMF, while waiting for help from China in the form of debt rollovers,” said a senior banker. .
Published at dawn on January 18, 2023
