Rupee extends slide

Our Correspondent
Saturday, May 21, 2022

KARACHI: Rupee slumped past 200 per dollar in the interbank market on Friday, an all-time low for the ninth consecutive session, as worries about the revival of the International Monetary Fund (IMF) loan programme continued to hurt sentiments.

The rupee closed at 200.14 to the dollar, down 0.07 from the previous close of 200.

In the open market, the rupee ended unchanged at 201 per dollar, dealers said.

The sliding rupee has caused alarm in Pakistan, which is already facing a higher trade deficit and rampant domestic and foreign borrowings. The country is struggling with soaring inflation and increasing costs for fuel and power, which both are greatly influenced by the dollar exchange rate.

Government of Pakistan is negotiating with the IMF to resume a stalled loan programme as the foreign exchange reserves continue bleeding, intensifying the balance of payments woes.

Foreign currency reserves of the State Bank of Pakistan declined to $10.2 billion during the week ending May 13, leaving barely enough to cover less than two months of imports.

The current account deficit narrowed 39 percent to $623 million in April. However, it widened sharply to $13.8 billion in 10 months of this fiscal year.

Some analysts expect the current account gap to be $3.6 billion in the fourth quarter of FY2022. The external debt repayments in April-June FY2022 stand at $4.9 billion. The gross financing requirement for the last quarter of FY2022 is around $8.3-8.5 billion.

The government has limited financing options so it would have to control development spending, increase levies and taxes on fuel, and adjust electricity and gas tariffs. The government also needs to withdraw tax concessions and increase income taxes.

If the government makes these adjustments, it would help revive the IMF bailout, which would unlock financing from other bilateral, multilateral and commercial lenders.