| The Pakistani rupee sank sharply by Rs18.74 against the dollar in the interbank market on Thursday, with the local currency trading at a historic high of Rs284.85 in morning trade, according to data shared by the Exchange Companies Association of Pakistan (Ecap).
Analysts attributed the record drop — which is 7.04pc — to the government’s impasse with the International Monetary Fund (IMF).
On Wednesday, the PKR closed Rs266.11 per dollar, according to SBP data.
‘Uncertainty due to delay in IMF funding’
Topline Securities chief executive Mohammed Sohail told Dawn.com that the fresh plunge was mainly because of uncertainty in the currency market regarding the delay in funding from the IMF.
‘Currency crackdowns only strengthened grey market’
Zafar Paracha, secretary general of the Exchange Companies Association of Pakistan (ECAP), explained to Dawn.com that the IMF had asked Pakistan to trade the dollar at the current Afghan trade rate.
“In other words, they had said our actual rate should be as in the grey market rate, not the interbank rate or the open market. They are right as the availability and trade of dollars taking place right now is only in the grey market,” he added.
He said that the government imposed restrictions on foreign exchange, as a result, the trade shifted to the grey market.
The dollar does not come or go because of the many restrictions they have imposed on foreign exchange companies on its buying and selling, he said.
He said this is despite the government’s crackdowns [on the grey market]. Paracha called for a revamp in the policies, saying conducting crackdowns would not help.
“Inadvertently, we have greatly supported the grey market because of our policies. The IMF can also see this so they have said to bring our rate — of the rupee and dollar — to that point,” he added.
Situation dire
The currency has been sliding in recent days after delays in a deal between Pakistan and the International Monetary Fund, which they have been negotiating since early last month.
Pakistan is in the midst of a severe economic crisis, with its reserves depleting to just over $3 billion, enough to cover only three weeks of imports. In such a situation, the country urgently needs to sign a deal with the IMF that would not only release $1.2bn but also unlock funding from friendly countries and other multilateral lenders.
A well-placed source had earlier told Dawn that Pakistan and IMF would sign the staff-level agreement on Feb 28. However, background discussions with officials reveal the government is finding it increasingly difficult to convince the Fund to release a loan instalment.
The IMF has changed interpretations of at least four prior actions ahead of reaching a staff-level agreement on the direly needed economic bailout, government sources said.
Pakistan’s central bank foreign exchange reserves have fallen to hardly cover three weeks of imports.
Pakistan’s central bank is widely expected to raise its key policy rate by 200 basis points in an off-cycle meeting on Thursday, a Reuters poll showed.
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