Daily Times

KARACHI: The United States dollar touched a record-high level of Rs 124.25 for buying in the open market, and Rs 120.25 for buying in the interbank market, on Wednesday.

In the open market, the dollar increased by 50 paisas in a day and closed at Rs 124.25 for buying, and Rs 125.45 for selling.

Commenting on the development, currency dealers say that the local currency has slipped by Rs 2 against the dollar in the last two trading sessions. Among the factors responsible for the trend, they identify falling foreign reserves, higher import bill volumes, and high demand for dollar in the local currency markets, mainly for the imports of crude oil, palm oil, industrial raw material and commodities.

During January-May 2018, the local currency has depreciated by around Rs 14.35 against the dollar. In this period, the country has witnessed fall in foreign exchange reserves, which came down at an 18-month low to around $10.45 billion, with widening current account deficit, nearing $12.3 billion. The local currency has depreciated by more than five percent so far since the beginning of the current financial year on swelling imports bill and payment to international donors’ loan installments.

The government’s borrowing from State Bank of Pakistan up till May 2018 and absence of foreign inflows in the economy are also one of the major reasons for downward trend.

The government’s debt stood at more than Rs 23.8 trillion by the end of June this year. There was a net increase of Rs 3.9 trillion, or 14 % in the first 11 months of the 2017-18 fiscal year.

Meanwhile, currency dealers lament that instead of paying attention to revenue generation plans (from taxes, privatisation and foreign aid), the government remains occupied with borrowing money and printing currency notes, equivalent or more than 2.9 percent of the gross domestic product.

Despite many assurances to IMF, the government has failed to implement key benchmarks agreed with the IMF, that could have brought the central bank’s borrowing to a desired limit, enforce general sales tax on goods and services in integrated mode, eliminate power sector subsidies and keep the budget deficit within agreed limits.

The dealers maintain that borrowing is root cause putting pressure on macroeconomic stability and core inflation that increased to 12 percent in May 2018.

International ranking agencies have already highlighted weak government finances, structural inflationary pressures and domestic political uncertainties as factors adding to Pakistan’s external vulnerabilities and debt sustainability, compounding the downward pressure on sovereign creditworthiness.

Financial expert Fazal Ahmad, based in Houston, predicts that the Pak rupee will likely set a new record in the coming weeks on the pressure of macro-economic indicators.

Published in Daily Times, June 21^st 2018.