Analysts say Pakistan’s rupee was overvalued by as much as 20 per cent and has a negative impact on the country’s exports.
Pakistan’s currency on Wednesday dropped the most in nine years amid rumours of devaluation due to surging trade deficit and shrinking exports of the country.
The rupee hit its lowest level since 2013 by shedding value of more than 3 per cent to 108.1 against the US dollar, according to data compiled by Bloomberg.
South Asia’s second largest economy came under severe pressure due to the country’s surging trade deficit on the back of falling exports and a sharp increase in the import bill.
The trade deficit soared 42 per cent to an all-time high of $30 billion in first 11 months of financial year 2016-17. In May, year-on-year trade deficit surged 61 per cent to $3.465 billion, according to the latest data released by Pakistan Bureau of Statistics.
The year-on-year import bill during July-May 2017 period rose 20.6 per cent to $48.54 billion. It is expected to reach over $53 billion this fiscal year. In the 11 months through May, the export dropped from $19.14 billion a year ago to $18.54 billion, putting pressure on the currency.
Referring to the International Monetary Fund report, analysts said Pakistan’s rupee was overvalued by as much as 20 per cent and has a negative impact on the country’s exports. Karachi-based Topline Securities said in a research note that ‘rupee devaluation’ is a ‘long overdue’.
“Today, the PKR-US dollar exchange rate in the interbank market has depreciated by 3.1 per cent from Rs104.90 per US dollar on Tuesday to Rs108.25 per US dollar,” according to State Bank of Pakistan, the central Bank.
While almost all macroeconomic indicators have been showing encouraging picture, such as decade-high real GDP growth, increase in investment, credit expansion to private sector, and subdued inflation; the central bank said the deficit in the external account has been rising for some time. Accordingly, the exchange rate adjusted in the market and SBP is of the view that this depreciation in the exchange rate will address the emerging imbalance in the external account and strengthen the growth prospects of the country.
“SBP also believes that the current exchange rate is broadly aligned with the economic fundamentals. SBP will continue to closely monitor the developments in the foreign exchange markets and stands ready to ensure stability in the financial markets,” according to the central bank statement.
Reacting to the news, some Pakistani expats express their concern over the shrinking value of the rupee and said it would have a negative impact on the economy.
“The devaluation always pushed inflation on higher side and made the common life miserable in past and this seems to be going happen again,” Saba Fahad, a Sharjah-based resident said.
On the other side, some expats gave a different perspective and said it is bad for the country, but as an individual it will benefits the overseas Pakistanis by exchanging more rupees compared to other international currencies.
“There is no salary hike or bonuses due to general slowdown in economy, but with the devaluation of currency as much as by 20 per cent will give a good boost to our income and benefit the families back home in the country,” Basir, a Dubai-based banker said.
The rupee’s strength “was leading to a wider current account deficit and depreciation pressure on the currency,” Divya Devesh, a Singapore-based Asia foreign-exchange strategist at Standard Chartered, told Bloomberg.
“We were forecasting a move toward 108 in USD-PKR by end-year,” he said.
Courtesy: Khaleej Times