News Analysis |
The Pakistan rupee has hit an unprecedented low rate against the dollar at Rs127.50 in the interbank market rate today [Monday]. The US dollar has risen by Rs. 6 in the interbank market. In the early day trading, the rate of the dollar had increased to Rs. 126. However, it declined to Rs. 125.50 afterward, before taking an all-time high jump to Rs 127.50.
When the markets closed down on Friday, the rate stood at Rs 121.5. The country’s key macroeconomic indicators are not presenting a pretty picture and have deteriorated in last few months. The independent economists had predicted that government will seek a bail-out package from IMF after the 2018 polls.
The CPEC related debt is also soaring which should not be ignored. It is praiseworthy that Pakistan has achieved GDP growth in the last couple of years, but this growth has been achieved based on the huge spike in public debt.
Pakistan is in midst of financial crisis. Pakistan’s current account deficit is at historically high levels. It shot up by 43% to US$15.96 billion in the first 11 months of the financial years. Pakistan has thus far received workers’ remittances of US$18.3 which is much lower than the target of US$20.7 billion. On contrary, imports have reached US$50.71 billion which is much higher than the target of US$48.8 billion. On the backdrop of macroeconomic mismanagement and questionable economic policies, Pakistan’s external position remains highly vulnerable. The rupee devalued by over 15% since November 2017.
The interim Federal Minister Finance, Planning Development, and Reforms Shamshad Akhtar has indicated that Pakistan is gearing up to initiate talks with the International Monetary Fund (IMF). Shamshad Akhtar has revealed that the country’s debt to GDP ratio is 72 percent and it could go up to 74 percent by the end of current fiscal. The country’s debt has already ballooned to Rs24.5 trillion. The total debt comprises of domestic debt of worth Rs 16.5 trillion, while the external debt was Rs8 trillion as per the figures published in May 2018.
“The effective exchange rate management and the effective fiscal deficit is the key to ultimately managing our debt situation effectively,” asserted Akhtar. GVS spoke with the Dr. Hafiz Pasha who argued that “Pakistan is in a very difficult situation, least what interim government would have done is to invite the IMF for normal article four consultation. That would have set the process going.
The US dollar has risen by Rs. 6 in the interbank market. In the early day trading, the rate of the dollar had increased to Rs. 126. However, it declined to Rs. 125.50 afterward, before taking an all-time high jump to Rs 127.50.
Now, without going to any negotiation mode, they would have arrived at some understanding that what is the reform package which is immediately required. This would have facilitated the coming government to immediately because now every day counts.” The increase in the exchange rate is expected to make the situation worse for the country as the debt continues to soar to an unprecedented level.
Pakistan is bracing for tough times ahead as the next government will have to make some tough decisions. The upcoming government will inherit record trade deficit of $US37.7 billion. The debt situation is extremely worrisome as the country remains in critical economic position- due to deteriorating economic indicators and depleting foreign exchange reserves.
In addition, the CPEC related debt is also soaring which should not be ignored. It is praiseworthy that Pakistan has achieved GDP growth in the last couple of years, but this growth has been achieved based on the huge spike in public debt. The lackluster exports, too much reliance on imports and failed to overcome the manufacturing and industrial woes, the sustainable returns remain a distant dream. If Pakistan is to avert the financial crises, it must overcome its chronic problems, which haunted its beleaguered economy for decades.