SINGAPORE: Moody’s Investors Service has on Tuesday expressed fears for the Pakistani rupee to depreciate further against the US dollar but hopes that the depreciation will bring long-term benefits for the Pakistani currency.
“Over the longer term, allowing the PKR to reflect currency fundamentals would reduce the drain on Pakistan’s (B3 stable) foreign exchange reserves and enhance the sovereign’s capacity to absorb shocks to trade and/or capital flows. Moreover, if inflation expectations are anchored and the government’s liquidity risks do not rise sharply, currency flexibility would also enhance Pakistan’s price competitiveness, given the current overvaluation of the PKR”, Moody’s said in an announcement”, Moody’s said in its announcement.
The credit rating firm observed that ‘PKR depreciated around 5% against the USD, with most of the weakening occurring over three trading days between 8 and 12 December 2017’.
Citing the real problem behind the currency depreciation, Moody’s said that 33% of Pakistan’s debt was in foreign currency and that the debt burden was 68% of the GDP at the end of the previous fiscal year while it should be 55% for the B-rated sovereigns.
It said that at the current levels, Pakistan’s credit rating was not likely to be hit but further depreciation was certainly possible; and likely as well. It hoped that ‘Pakistan’s current account deficit to remain around current levels, at 3%-4% of GDP, due to the high import intensity of domestically-driven growth’.