KHALEEJ TIMES, Thursday, Oct 11, 2018 | Safar 2,1440
Who will rescue Pakistani rupee sliding against dirham?
The Pakistani rupee on Tuesday was unofficially
devalued by 7 per cent plunging to all-time low of 35.67 against the UAE dirham.
The rupee is expected to decline further in coming weeks due to a balance of
payment crisis and concerns about the IMF's strict conditions ahead of $7
billion bailout talks.
This was the fifth unofficial devaluation of the
rupee by Islamabad since December 2017. The previous devaluations were in the
range of 5 per cent.
Vijay Valecha, chief market analyst, Century
Financial, predicted that the rupee would touch 40 against the UAE dirham in the
"News of the IMF bailout has set off a sharp fall
in the value of rupee to 134 against the US dollar. Local news reports from
Pakistan suggest that the currency was intentionally weakened to fall in line
with the strict conditions laid down by the IMF. It is popular wisdom that the
IMF is not an easy institution to deal with, especially when under financial
distress. The current crisis in Pakistan has been triggered by a balance of
payment issue and inadequate foreign exchange reserves to pay for imports,"
With global economy slowing down and countries
across the world erecting trade barriers, Valecha says it is highly unlikely
that exports from Pakistan will have a sharp turnaround. Hence, the downtrend in
currency is likely to continue and the dirham could fetch Rs40 in short-term.
Rajiv Raipancholia, CEO, Orient Exchange, expects
rupee to drop further to 136 against the US dollar, or 37 against the dirham in
Even if the IMF and Islamabad agreed on a bailout,
it will take some time for other terms to materialise, so the rupee can touch
even 140 against the dollar, or 38.15 against the dirham.
"An assessment by the State Bank of Pakistan and
the finance ministry showed that Pakistan needed $11.7 billion to service its
external debt in current fiscal year 2018-19. Borrowing from the Gulf countries
and non-resident Pakistanis through special bonds are other sources available
for the government," Raipancholia suggested.
Abid Qamar, a spokesman at State Bank of Pakistan,
said the market knows the macroeconomic conditions and based on those, they are
having their own expectations for the exchange rate.
Some analysts have reportedly said that Islamabad
will need approximately $9 billion to stabilise currency and overcome balance of
payment issue. Pakistan's fiscal deficit was on target to hit 7.2 per cent of
GDP in the fiscal year ending in June 2019, but the government has introduced
measures to bring it closer to 5 per cent.
Jameel Ahmad, global head of Currency Strategy &
Market Research at FXTM, said by all accounts, situation for rupee could get
much worse before it gets better.
"I hope that the Pakistani market doesn't
encounter the same weakness seen in the Turkish lira and Argentine peso over the
past few months. The advantage to a bleak situation when it comes to finances in
Pakistan is that investors are not that surprised of reports that it will
request a bailout from the IMF. It also isn't that new of a situation for
Pakistan, when you consider that it has on multiple occasions in the past
requested help from the IMF," said Ahmad.
Downside to this situation, he said, is that the
request for a bailout will more likely than not ensure that the Pakistani rupee
remains at very weak levels.