KARACHI: The Pakistani currency on Tuesday slumped to another all-time of Rs221.99 against the US dollar, traders and analysts said, after an international credit rating agency downgraded the country’s outlook from stable to negative.
Fitch Ratings revised its outlook for Pakistan to negative, citing deterioration in the country’s external liquidity position and financing conditions since the beginning of the year. It said Pakistan was likely to get support from the International Monetary Fund (IMF), though it would still not be enough to help the South Asian country overcome its economic woes.
Pakistan, which is currently facing a widening current account deficit and depleting forex reserves, last week reached a staff-level agreement with the global lender and is expected to receive $1.17 billion after the approval of the IMF board in the next six weeks. But the rupee is continuously sliding because of rising import bills and uncertainty arising from the current political situation.
On Tuesday, the Pakistani currency lost its value by 3.06 percent, or Rs6.79, against the greenback, the highest single-day depreciation since June 26, 2019. The currency has lost its value by 8.5 percent, or Rs17.43, during the current fiscal year and 25.6 percent, or Rs45.24, since January, according the central bank data.
“Three factors contributed to the rupee’s free fall, including continuous pressure for import payments, ongoing political uncertainty and downgrading of Pakistan’s outlook by credit rating agency, Fitch Ratings,” Samiullah Tariq, research director at the Pakistan-Kuwait Investment Company, told Arab News.
“The currency and equity markets of Pakistan now desperately need clarity at political and economic fronts. The government needs to take measures to bring stability in the capital markets.”
Currency dealers said political uncertainty relating to the future of Prime Minister Shehbaz Sharif’s government was playing a destabilizing role at the economic front and the currency market was bearing its brunt.
“Tremors are being felt in the currency market following results of by-polls in Punjab. Future of the coalition government and continuation of IMF program remain uncertain,” Malik Bostan, president of Pakistan Forex Association, told Arab News.
“Political instability is giving way to economic instability in the country, setting a bad precedent for the capital markets.”
However, top leaders of the ruling Pakistan Muslim League-Nawaz (PML-N) party have insisted that the coalition government would not call early elections and complete its tenure after the opposition Pakistan Tehreek-e-Insaf (PTI) won 15 out of 20 provincial assembly seats in Punjab by-elections on Sunday.
Bostan said Pakistan’s import bill was also increasing due to imports for Afghanistan as Kabul lacked dollars in the absence of funds and international payment channels.
Pakistani business persons fear the closure of factories and huge financial losses due to the “unprecedented volatility in rupee-dollar parity.”
“The unprecedented volatility in rupee-dollar parity is playing havoc with the economy and now imports of essential commodities and industrial raw materials are also under threat,” Suleman Chawla, acting president of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) said in a statement.
“The situation is so mismanaged and grave that many factories are under the risk of closures or will have to face financial penalties for not being able to keep up with their production schedules and export deadlines.”
The benchmark index at Pakistan’s stock market also fell by 2.36 percent, or 978 points, to close at 40,389-point level.
“Stocks closed bearish after Fitch ratings downgraded Pakistan’s outlook to negative affirming B-ratings on external vulnerability, narrow fiscal revenue and low governance,” Ahsan Mehanti, CEO of Arif Habib Corporation, told Arab News.
“Record slump in rupee continues to trigger institutional selling, playing catalyst role in record fall at PSX (Pakistan Stock Exchange) in the earnings season.”
