By Mehtab Haider
ISLAMABAD: The State Bank of Pakistan, following International Monetary Fund (IMF) instructions, has allowed depreciation of the rupee against the dollar by 8 to 10 per cent by pursuing a flexible exchange rate movement in the last few days.
This could result in economic crisis for Pakistan, as economic ministries are of the view that such policies were pursued in the 90s and were unable to boost exports significantly. Instead, they contributed much to the growing miseries on all fronts.
“The SBP allowed exchange rate movement which resulted in depreciation of the rupee up to Rs65 against the dollar in the inter-bank market,” a source in the IMF told The News.
The dollar, in the open market, was traded at Rs67 against the dollar. Depreciation of the rupee in the inter-bank and open markets stood at around 8 to 10 per cent.
Washington-based sources told The News that IMF officials raised the issue of internal and external imbalances during the IMF-World Bank annual spring meeting recently held in the US. The IMF asked Pakistani authorities to let the exchange rate move freely, without any intervention from the central bank, sources said.
However, Pakistan’s Finance Minister Ishaq Dar sternly opposed this idea. He was of the opinion that the country’s experience to depreciate rupee against the dollar in the 90s failed to boost exports, sources quoted the minister as saying during his meeting with IMF officials.
Sources said that after the IMF-WB annual meeting, the central bank allowed movement in the exchange rate. Due to this, the rupee went to its lowest level against the recently weakened dollar. The Finance Ministry is helpless as SBP has full autonomy and can make its decision independently, stated the sources.
“Foreign buyers asked Pakistani exporters to reduce their value price per unit, thus they benefited from the depreciation of the rupee and not our exporters,” stated the official.
Another difficulty arising out of depreciation is the growing cost of imported raw material, which is used to produce exportable surplus. Thus, depreciation actually increases the cost where products are manufactured through imported raw materials, the official added. There is an impression that the exchange rate is out of central bank’s control, resulting in more pressure on the rupee against the dollar.
“The SBP is doing nothing to control the situation,” said market sources, adding there were significant chances that the rupee would fall further against the dollar if certain corrective measures are not taken by the SBP.
Demand of the dollar is much higher due to the growing current account deficit, soaring oil prices and commodity prices, said the sources.
The government of Prime Minister Syed Yousuf Raza Gilani is striving hard to arrange $3 billion additional funding, in a bid to improve the dwindling foreign current reserves, which have fallen to just over $12.6 billion.