Pakistan's currency plummets to record low of 255 against US dollar
Cash-strapped Pakistan's currency plummeted to a record low of Rs 255.43 against the dollar in the interbank market on Thursday, an indication of the government buckling under the pressure of the IMF to lift an artificial cap on the exchange rate.
According to the data of the State Bank of Pakistan, the rupee slid by Rs24.54 or 9.61 per cent from Wednesday's market closure.
It was the largest single-day decline in both absolute and percentage terms since the introduction of the new exchange rate system in 1999, Ismail Iqbal Securities’ Head of Research Fahad Rauf was quoted as saying by Dawn newspaper.
The rupee also depreciated by Rs12 or 4.94 per cent in the open market where its rate was Rs243 on Wednesday as compared to 230 in interbank. The new rate has helped to bridge the gap between the official and private rates which had created a grey market for dollars.
The much-needed adjustment in the exchange was long overdue after Pakistan’s foreign exchange reserves dwindled at a faster pace after the IMF refused to send its team for the ninth review of the USD 6 billion assistance package which was initially agreed in 2019.
It remained suspended when restored in August last year, leading to release of more USD 1 billion by the lender. However, the program again faced an uncertain future after Finance Minister Ishaq Dar after taking over in September last year refused to follow market-based exchange rate which was in place until then.
Dar had said that the fair value of the rupee stands in the range of Rs180-200/USD and kept insisting that market forces had artificially undervalued local currency.
After allowing the market to determine the exchange rate, the government is hoping that the IMF would soon send its team for talks and ultimately release the next tranche of USD 1.2 billion.
The decision also positively impacted the capital market and helped the Pakistan Stock Exchange (PSX) rise at one point by 1,200 points and finally settle by gaining 1,061 points at the end of the trading day.
Meanwhile, former finance minister Miftah Ismail who was removed to make place for Dar, who is a confidante and relative for former premier Nawaz Sharif, criticized his successor for causing “a big loss” to the economy by ignoring the guidelines of the IMF.
"Dar sahib, after taking the reins, thought he would fix the economy without the IMF or by scaring the lender to accept Pakistan’s demands, as he had been openly opposing the IMF conditions. He made an attempt and as a result, Pakistan suffered a big loss,” said Ismail.
The former finance minister has been criticizing the policies of Dar since his removal as flawed and demanding course correction. He also proposed to make changes to make the state more responsive to the masses instead of caring for a tiny minority.
"If all countries like Bangladesh and India are leaving us behind, then it indicates that Pakistan has a flawed governance model,” he said.
Pakistan is battling to fix its economic and political fissures amidst a parochial political rivalry between former premier Imran Khan and the current government.
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