Rupees’ losing value hurt national economy
September 30, 2011
Pakistani currency’s constant depreciation against dollar particularly since the start of the month will not bode well for the economy as it will balloon import bill and increase debt payment significantly.
The rupee position in the interbank and open market had been witnessed worst in the closing month, reaching record all-time low at 87.62 in the interbank and 89.80 in open markets. The rupee has lost 71 paisa or 0.8 percent its value against greenback so far in the present month.
According to the dealers, the rupee depreciated in both markets to cross the level of 90 against the dollar recently amid its high demand in the local markets by investors and traders.
The dollar recently gained strong positions against the major currencies of regional countries including Pakistan’s rupee in addition to rising concerns on foreign affairs with US that heated panic selling in the trading market.
“Small traders were witnessed flocking to the currency market for their maximum buying which led to the panic selling and devaluation of rupee,” Haji Haroon, President Exchange Companies of Pakistan (ECAP) said.
He was of the view that dollar got strengthened as the bullion market drastically lost its value in the previous weeks, forcing traders to shift their investment in greenback. Haroon said the demand for dollar has been high among traders after Eid with no intervention of the central bank.
Analysts said the rupee instability against dollar caused negative repercussions on the economy—which will reflect its impacts on inflation, import bill and debt payment of the country.
Petroleum products, raw materials and food items have been costly on the rupee depreciation that will fuel inflation on the goods and services of daily life. Also, the cost of production of various items has been increased, which will spell into retail prices in the local markets.
Pakistan’s external debts and liabilities have been widening on the back of growing rupee and dollar disparity.
Pakistan’s external debt and liabilities (EDL) rose by $4.2 billion or 7.5 percent to $60.116 billion by the end of the 2010-11 against $55.901 billion in its previous fiscal year, the State Bank of Pakistan (SBP) figures stated.
The public debt includes government debt, from the International Monetary Fund (IMF) and foreign exchange liabilities. Public debt increased to $56.315 billion by June 2011 against $52.107 billion in the previous month of the last year.
If calculated the value of dollar at present stage, the debt amount reflected the increase of US$ 48.09 million.
Besides the payments of import are likely to show increase in the present month with increase in the value of dollar and higher imports.
The imports bill may show widen by 3 to 5 million dollars in the current months provided that expense same as previous month however the amount could increase.
The two external factors will also impact negatively on the current account of the country, which have remained in the deficit in the first two months of the current fiscal year.
On the other hand, the remittances, exports earnings and FDI will slightly dilute the impact of the rupee depreciation against dollar. The remittance and exports inflows are estimated at US$ 1.2 billion and US$ 2 billion in the next month whereas the foreign investment will remain show its lackluster trends by the foreign investors.
Analysts said the intervention of central bank is indispensable and imminent in upcoming days to stop the deteriorated situation of currency in the trading markets, however, the supply and demand of greenback will settle position of rupee.
The rupee will remain under pressure to loss its value against dollar in the coming months on the higher demands in the trading market, said Sayem Ali, Country Economist of Standard Chartered of Pakistan.
He forecast the dollar might be settling at 90 rupees but there are strong hopes on the macroeconomic front that it local currency will regain its position slightly.
He quoted IMF country’s outlook that projected dollar value against rupee to be end at 98 by 2013, saying it will be challenge for policy-makers to drive the country’s economy through trade measures.
He said the traders and investors are involved in converting their savings but they are not significant in numbers that could cause dollarisation of the economy.