Dollar-rupee parity stays on roller-coaster for four months

This is worst, during this period, the Rupee depreciated 11.5 per cent — a grave level, leading to a massive price hike, a bout of inflation, and the energy crisis as imported furnace oil prices went up making electricity generation costly. Add to it the government’s lack of vision. People are already wondering as to how long the government itself can stay in power?

A big question ! A grim question for a government fondly elected with a big Parliamentary majority, by getting rid of the corrupt and inept Pakistan Peoples Party government that was led by President Asif Ali Zardari.

Deep economic woes, piled up during the ousted PPP government, and their aggravation, rather then their healing, may itself shoe out Sharif’s Pakistan Muslim League (Nawaz) government.

The Pakistani currency depreciated from Rs95.91 to a dollar in September 2012, a year later, to Rs106.95 to a dollar in September 2013, in the official inter-bank market. At the same it went down from Rs95.08 in September 2012 to Rs106.25 to a dollar in September 2013 in the open market or the kerb.

The worst was on September 25 when the Pakistani currency, sank to Rs110.10/110.20 to a dollar. The dollar was trading at Rs105.90/105.92 in the inter-bank market, and Rs107.00/107.25 in the open market, over this weekend.

The Rupee saw its worst when all the financial top guns, including Finance Minister Ishaq Dar, and Yaseen Anwar, Governor, State bank of Pakistan (SBP), the central bank, as well as Prime Minister Sharif were out of the country. As panic gripped, and the Rupee went down the roller coaster, Sharif while still at the United Nations in New York, ordered the SBP to pump dollars into the market to overcome the crisis. SBP, reportedly intervened and pumped between $25 to 50 million into the market. It partially stemmed the downslide. The rate improved and it gained Rs 0.69 to a dollar to improve the inter-bank rate from Rs106.95 on September 24 to Rs106.26 on September 25. The Rupee traded at 108 against September 24 rate of 108.28 in the open market.

The Rupee started sinking soon after the government agreed with IMF over the conditionalities for a $6.3 billion Extended Fund Facility (EFF) loan for three years, to bolster its depleting forex reserves and improve external account. It signed an open Letter of Intent (LoI) to accept the IMF deal, but market sources and bankers claim that there are ”hidden” and unwritten conditions to tighten the economy, raise taxes and depreciate the rupee. One of thee is to let the currency depreciate to Rs110 to a dollar by the end of fiscal 2014 — which means June 30, 2014. This information leaked to the market. Even though the government denies it, but it led to the Rupee’s quick fall, almost nine months ahead of June, 30, 2014 target.

At the same time, the government openly asked the foreign and Pakistani banks for a forex loan of $650 million to shore up its own forex reserves. Ten banks have offered the government $650 million at slightly less then six per cent. It also squeezed the forex market. Dar asked all banks to bring in the dollars from their off-shore resource, and not to provide the amount from their Pakistan-based funds, in order to ensure inflows.

But will the banks listen? Will commercial bank inflows take place? It looks doubtful. The current season for Pakistani pilgrims to travel to Saudi Arabia to perform ‘Haj’ is also estimated to have created a demand for $750 million, and pilgrims are buying dollars from the open market for their travel needs abroad. This was yet another reason to raise the dollar rate.

SBP Governor Anwar Yasin, estimates, “$25 million in cash is being daily smuggled out of Pakistan through country’s airports.” In his testimony to the Senate, the upper house of the Parliament, Yasin said, “this smuggling is one of the reasons, the Rupee is falling down in foreign exchange trading.”

The continuing unease about the future of health of the Rupee is pushing a large number of people to stick to dollars — and buy more of these. Dollarisation of the economy, as a result, is going on, and is likely to persist, bankers, economists and the open currency market dealers insist.

It has been followed by huge imports of gold, two months ago. That was the time when international gold pries had gone down. A large amount of Rupees was converted into dollars to import gold as an investment, which also led to a big demand for the greenback, and had raised its exchange rate. Part of this gold was smuggled out to India which allows official imports on payment of duties, making smuggled-in gold cheaper.

As the travails of the Rupee continue, Pakistani consumers are the worst sufferers. Economist estimates consumer goods prices to rise 5 -15 per cent. The costs of the old and new government borrowings and servicing has gone up in billions.

The cost of industrial production, using a big proportion of imported inputs, has gone up, too, making their exports highly vulnerable to foreign competition. Pakistani imports currently hover around $40 billion a year, while exports stay at around $20 billion.

The forex market, economists, and foreign and domestic bankers are nearly unanimous in forecasting an “uneasy future “ for the rupee. The current forecast is, the roller-coaster effect on dollar-rupee parity will persist — in the foreseeable future of the Pakistani currency.

Views expressed by the writer are 
his own and do not reflect the 
newspaper’s policy.