Devaluation drags Pak rupee to record low

karachi — Pakistan’s rupee weakened to a record low after the central bank continued to ease its grip on the currency amid mounting economic pressure and speculation that the country may need International Monetary Fund (IMF) support.

The rupee was unchanged at 109.5 per dollar at 1.27pm in Karachi, after three days of losses, data compiled by Bloomberg show. The currency has been the worst performer globally since Friday, when the State Bank of Pakistan allowed the rupee to decline.

The nation’s economy has been stressed by widening deficits and declining foreign-exchange reserves that have dropped to less than half that of Bangladesh. That’s prompted investors, economists and the IMF to call for the central bank to scrap its managed float. The rupee was Asia’s moststable currency since 2014 until the recent weakness.

“The decision to allow the rupee to ease is a belated response to the deterioration in the current account and pressure on foreign reserves,” said Hasnain Malik, the Dubaibased head of equity research at Exotix Capital. “This move should have come earlier, but now is better than delaying it further with more trade and capital restrictions.”

The IMF has long indicated it believed the currency was overvalued and the Washington-based lender’s country mission chief, Harald Finger, is due to brief reporters on Thursday in Islamabad after talks with Pakistani government officials last week.

With elections due in August, Pakistan’s Prime Minister Shahid Khaqan Abbasi has denied the nation will need IMF aid so soon after completing a $6.6 billion loan programme last year that averted a 2013 balance-of-payments crisis. Some analysts still say the nation will need financial support as its external position continues to worsen and exports

The decision to allow the rupee to ease is a belated response to the deterioration in the current account and pressure on foreign reserves

Hasnain Malik, head of equity research at Exotix Capital

— such as textiles — continue to trail regional peers.

China funding

The World Bank estimated in October that $17 billion of external financing — or five per cent to six per cent of gross domestic product — is needed in the year through June for Pakistan to bridge its debt payments and current account deficit. Rising imports on the back of China’s $55 billion “Belt and Road” infrastructure push in the nation has caused the current-account deficit to more than double to $14.4 billion in the year through September.

Foreign-currency reserves slumped 29 per cent to $12.9 billion in the year through October and in an effort to shore up its finances, Pakistan raised $2.5 billion in a dollar-denominated debt sale last month.

“It is the usual routine for Pakistan — hold the line on currency until the trade balance deteriorates, devalue, repeat,” said Paul McNamara, a London-based fund manager at GAM UK Ltd, that holds Pakistan bonds. Pakistan’s economy will be “more of the same — it’s not going to crash, not going to break out.”

‘More focus’

The rupee’s slide prompted Pakistan’s parliament committee on finance to call in central bank governor Tariq Bajwa, deputy governor and officials from the finance ministry on December 19.

“We have got to know why this happened and on whose orders,” the committee’s chairman Saleem Mandviwalla said. — Bloomberg