Value of rupee slip against dollar

Pakistan is a country where the burden of payments and debts are the factors that determines the market-driven exchange rates. The pattern of foreign trade growth also plays a vital role in this regard. A country which does not have sufficient foreign exchange holdings, the above mentioned two factors can be threatening for such an economy. We have seen a sudden change in Pakistan’s market economy when import payment’s scale is increasing upward since March following a passive growth in the last eight months.

Since four months, after the announcement of fiscal year budget in June 2013. The average imports monthly are $4.135 billion. On the other hand, export earning average $1,976 billion monthly. So the graph of external payments is still higher. So this factor determines the currency exchange rates. “So, the timing is important,” said the chief forex dealer at a foreign bank. “We had such a large trade deficit on the one hand and on the other the country also made about $1.5 billion external debt payments (mostly to the IMF) during this period.” A senior expert says that this has been a major factor that determines currency exchange rates. This is how rupee is slipping against the dollar.

“If you’ve got to do big external debt servicing, often several times in a month, and with not much in forex reserves, exchange rates will remain under pressure.

Things become even more difficult when imports rise suddenly,” said a central banker. The situation is quite threatening, when market come under the attack of speculation. The interbank rates and open markets have difference in determining the value of rupee. When news of unrest spread into the market, the exchange rates show the ups and down conditions, thus jolted. So there left no purchasing power equivalence between rupee and dollar. Open market currency rate in Pakistan is calculated by banks and cited to the importers and exporters as a pre-indication of the future move of the exchange rate. For instance on June 28, the average rate of one-month dollar and rupee exchange was 100. It denotes that rupee has fallen to 99.66 per dollar at the end of the month of june to 100 by the end of July.

But rupee has lost its value very earlier. Thus identifying the uncertain market condition that could change the external account situation is quite challenging. But interbank se4rvices are doing their utmost effort in this regard. As they can observe the variations and the ups and downs in the actual exchange rate at any given time. By comparing the past working day, thus incur the forward rate that is helpful for importers and exporters. “This mechanism of forward rate quotations has enabled the inter-bank market on the whole to make more realistic projections of exchange rates,” said the treasurer of a large local bank.

Pakistan seeks $2bn from IMF

Well, if there is relief only in loans then why Pakistan’s is getting keener about investment. The government of Pakistan in order to complete the deficit is seeking more aid. Is this can add worth to nation like Pakistan and the economy like Pakistan? The outcome of this aid would be only the higher exchange rates and the diminishing value of local currency and what else is the effect of this aid. The 3billion dollar deficit between the external monetary outflows and inflows can be filled if the door of IMF is opened for us. So the IMF deputy managing director has ensured to the government of Pakistan to his support for an additional bailout package of 2 billion in loans.

The finance minister of Pakistan has exclusively announced on the fringes of a microfinance meeting. He expected the long term relationship between IMF and Pakistan and is confident despite of $5.3 billion assistance from IMF. Dar is very much confident about the IMF support and said “The IMF’s deputy managing director has promised me to support Pakistan’s request for an additional $2 billion in loans at the IMF’s Executive Board meeting on September 4,” further he explained the $5.4 billion bailout package is also expected to be approved in the meeting. Dar also disclose the fact that he has requested IMF to provide $3 billion in the first year of three year monetary aid program. In order to payback the outstanding debts that are more than $3 billion that is expected to be matured later this year. Well, the good news is this that Dar is committed to refund the $1.2 billion in the next fiscal year to IMF.

So the request for front cash loaded program does not seem to be matured by IMF. While the resources said the chances are high that IMF will follow the same scale like viewing progress on the agreed agenda. The resources further added that according to previous experiences of IMF that proved failure, IMF can take the risk this time. However, Dar has revealed his plain and doing every attempt to trap the lion. As he said, “I’ve also proposed to the IMF management that from the second year of the programme the tranches may be released on a quarterly basis,” Both, the IMF and Pakistan agreed to a $5.3 billion last week, but before qualifying for the programme, the country has to implement about half a dozen preconditions followed by a three-year roadmap of reforms.

According to sources, the biggest threat to the programme will be the Rs2.475 trillion tax collection targets which will have to show 26% growth to hit the ambitious goalpost. Any shortfall in revenues will derail the IMF programme, sources said. Dar said Pakistan has already started following the roadmap agreed with the IMF and the world has also started giving positive signals. “After talks with the IMF, international confidence has been restored and its fresh report on Monday, Moody’s said Pakistan is in the right direction.” So Pakistan’s economy has to face the biggest challenge in terms of IMF. What we have to see how open market currency in Pakistan will get affected under these circumstances. This bailout package will have a good impact on country’s economy and rupee will get a chance to increase its value or maintain its value for some time.
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