The rupee has been slowly falling in value due to Pakistan’s ongoing economic unrest, and the situation won’t get any better unless the government unlocks crucial International Monetary Fund (IMF) money and increases its tax base in addition to drastically cutting spending.
The Shehbaz Sharif-led government is finding it difficult to adhere to the “tough” criteria, which the Washington-based lender is demanding Islamabad to fulfil. The inflation has already reached a historic high.
Even though Pakistan’s Finance Minister Ishaq Dar has assured the nation’s weary of inflation citizens that he plans to sign the staff-level agreement with the IMF next week, the Fund has made another significant demand: peg the rupee’s interbank market rate to the incredibly high rate currently in effect at the Afghan border (also known as the Peshawar market).
“The IMF has asked that the interbank rate should be pegged with the rate prevailing at the Afghan border. In other terms, the IMF is asking that our interbank rate should be the same as the one in the grey market,” Exchange Companies Association of Pakistan (ECAP) Secretary General Zafar Paracha told local news channel.
Currency Dealer Prediction and Views Regarding Rupee Valuation
According to the top currency trader, if one pays attention to the demands made by the Washington-based lender, it is plausible to believe that the Fund has urged Pakistan to peg the rupee to the rate currently in effect on the black market.
On Thursday, the rupee had a sharp decline of Rs. 18.98 in the interbank market before closing at Rs. 285.09, while in the open market, it dropped to Rs. 288. But, according to Paracha, the dollar traded hands at roughly Rs. 300 on the black market.
The ECAP official predicted that the rupee will lose another Rs. 4-5 during Friday’s session and that it will cross the Rs. 300 threshold in the next days, in keeping with the Fund’s desire that the exchange rate be determined by the market.
If the economic crisis continues, things could get lot worse.
The currency dealer continued, saying that if the much-awaited sale goes through soon, it will be a lifeline for Pakistan as the money will allow the government to enter the “financial avenue”.
Friendly nations and other international organizations have requested Pakistan to make sure it obtains an IMF loan before they give it any funding, not after.
Paracha said that if all “things go well — the IMF, the World Bank, the Asian Development Bank, and the money from our donors’ conference — and we are able to get around $15 billion, then the dollar should come down to around Rs. 260”.
While elaborating on the additional factors that contributed to the rupee’s value decline, he claimed that the limitations placed on the exchange of foreign money forced people to use illegal channels like hundi and havala, which grew the black market.
He urged the administration to evaluate its policies, noting that the exceptional circumstance required the government to “pull up its socks.” “Unfortunately, these are the same mistakes that Sri Lanka made, and it defaulted,” he said.
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