PKR slide: business leaders underscore need for reviewing free float policy

KARACHI: Policy of free float of rupee should be revisited by the country’s new economic team, as sharp depreciation in the value of the currency and a critical decline in reserves are alarming, representatives of the business community have said.

The currency failed to win support against the US dollar and declined to a new low, as it plunged 0.6 percent (or Rs 1.13) to an all-time low level of Rs 190 against the greenback in the inter-bank market, said president of the Pakistan Businesses Forum (PBF), Mian Usman Zulfiqar.

He said that during a period of one month the rupee had depreciated by up to Rs 6, which is not a good omen for investors and the economy.

He said that free float policy should be revisited “in a very serious way” and taken up at the next meeting with the International Monetary Fund (IMF) officials. If things don’t improve soon, the dollar will touch the Rs 200 mark in the next few months because traders and market forces have manipulated the situation and getting good profits out of this trading but the country suffers.

The country’s economic team led by Finance Minister Miftah Ismail is scheduled to meet IMF officials in Doha on May 18.

The IMF team was earlier scheduled to arrive in Pakistan on May 10 to conduct the seventh review of the economy under the ongoing loan programme worth $6 billion. The government has claimed that the amount of loan has been enhanced to $8 billion, while the timeline for completion of the programme has been extended by one year till September 2023.

However, after showing some promise in 2021-22, the economy is back on a troubling track. Managing it will pose considerable challenge. Pakistan’s expanding import-export gap, crippling debt, rupee’s record nosedive against the US dollar, skyrocketing inflation, and shrinking reserves are key areas that require immediate attention.

The people are grappling with double-digit inflation, as well as wage and job losses, as macroeconomic indicators deteriorate. All these indicators led to stagnation of growth and fewer prospects of genuine improvement.

Confronted with these challenges, Prime Minister Shehbaz Sharif and members of his team travelled across the world to seek financial leverage from the IMF, Saudi Arabia, and the UAE. Unfortunately, quick help was not available.

Government sources kept claiming that Saudi Crown Prince Mohammad Bin Salman had agreed to provide financial leverage of around US $ 7.4 billion – including rollover of previous support of $ 3 billion and deferred oil payments. Another $ 1-2 billion was expected from the UAE.

During Miftah Ismail’s trip to Washington, it was claimed that IMF had agreed to add another $2 billion to the current programme as the previous government had only availed $ 3 billion since June 2019 and $ 3 billion were to be received till September 2022.

Mr Ismail had initially called for a new IMF programme, but sources privy to the developments claim that the Fund was not ready for that and instead suggested providing an additional $ 2 billion under the programme. However, the IMF team that was supposed to arrive in Islamabad on or before May 10 to finalise the details has not come yet.

The IMF team now wants to meet a Pakistani team in Doha on May 10, and that too once the Shehbaz Sharif government ends subsidies on petrol and diesel. But that would add to the government’s political challenges, which are already formidable by any standard.

The PBF president said that the government would have to come up with out-of-box solutions. He sought to remind the prime minister that without strengthening the rupee, inflation would never be curtailed.

President of the Korangi Association of Trade and Industry (KATI), Salman Aslam, expressed concern over the significant decline in the value of rupee against the dollar and fast depletion in foreign exchange reserves.

The depreciation in the value of the rupee that started before Eid has served to increase economic hardship. The government is facing problems on two fronts; first, the increase in the value of dollar value, and second, the depleting foreign exchange reserves.

Salman Aslam pointed out that the amount of $ 3 billion from Saudi Arabia is included in the $ 10 billion of central bank reserves. He said the government cannot spend the aid deposited by Saudi Arabia, so payment of three months’ import bill seems difficult.

He added that the government has to manage any further bailout package from friendly countries on an emergency basis. Even receiving an IMF tranche of $ 1 billion is insufficient to reduce the difficulties.

“At the moment we need the help of a large bailout package, which immediately releases the pressure on reserves and the Pak rupee,” he said.

Salman Aslam said that negotiations with the IMF must be finalised soon and efforts made to get more cooperation from countries close to Pakistan.

Copyright Business Recorder, 2022