Govt gives in to IMF diktat

ISLAMABAD: The State Bank of Pakistan (SBP) on Friday allowed the US dollar to appreciate by Rs8 in the open market to Rs141.5 and close to Rs5.60 in the inter-bank market to Rs139.1, top official sources told The News.

They said the dollar value will ultimately settle somewhere between Rs145 and Rs150 if Pakistan reaches a deal with the IMF, as another devaluation is on the cards. Major financial and economic centres are also predicting that the dollar rate is being raised to show the IMF that the government is committed to taking the bailout package. The “State Bank of Pakistan can never allow massive devaluation of Pak Rupee without the nod of the Finance Ministry. So it is a deliberate step to send the signal to IMF that it is ready to accept the stern conditions for $6-7 billion package,” they said. The Fund’s staff mission during the talks that ended on November 20, had asked Pakistan to increase the power tariff by 22 per cent, and had also suggested the government to let the market forces determine the value of the US dollar. During the talks, the value of dollar was at Rs134 and the government has now increased it to Rs139.5 in the inter-bank market, which will trigger a new wave of inflation.

However, from May 2018 till now (November 30, 2018), the country’s external debt has swelled by Rs3.325 trillion out of which almost Rs1.4 trillion debt was jacked by the PTI just on the account of Pak Rupee devaluation. The latest plunge of the rupee against the dollar by 3.75 percent will increase the inflation up to 8.5 percent from the existing 7 percent. The price of tea, edibles, pulses will increase manifold within no time. The discount rate has increased to 10 percent with the dollar appreciation by 3.7 percent. The IMF staff mission will present its report about Pakistan's economy before the board of directors in January.

“The government has devalued the Pak rupee in the latest development," the sources said. However, a Finance Division official said Pakistan has factually nothing in its pocket. “Our reserves stand at $8 billion out of which the government needs to pay off $6.5 billion to the international creditors so Pakistan has negative $4 billion in reserves, which is why the Pak Rupee has massively declined in a day,” the official explained. More importantly, the country is facing a deficit of $30 billion. He said, "So the demand and supply mechanism has adjusted the new exchange rate." The official admitted that in the short span of 102 days of the PTI government, the dollar has appreciated almost by Rs16 owing to which Pakistan’s external debt has increased by Rs1.4 trillion.

Dr Hafeez Pasha, an eminent economist, found himself shocked over the spike of dollar value just a day after listening to Prime Minister’s intending steps to get the country out of the economic morass. He said this is a second huge devaluation of the Pak Rupee as one month ago the dollar had also gone up just in one day by almost Rs10. The latest devaluation will add fuel to inflation by 1.5 percent up to 8.5 percent. More importantly, the cost of LNG, petrol and coal, which is used for electricity generation, will also surge.

Dr Asfaque Ahmad Khan, an economist, lashed out at the team of economic managers’ for jacking up the dollar value. He said it should have been at Rs124. Khan said he didn’t favour devaluation of the Pak Rupee. He said it is noticed that developing economies cannot take advantage of the devaluation as imports become costly.

He added the manufacturing cost increases manifold as the input of imports in Pakistan’s local industry is 60 percent. So, the Pakistani economy could not increase the exports up to the mark by taking advantage of the devaluation of local currency in the past.