The dollar saw a Rs9.5 rise Friday morning, jumping to Rs143.5 in the interbank market. This is the highest ever level the dollar has reached and the highest intraday gain in its history.
After Friday’s gain, the dollar has appreciated more than 28% this year, witnessing two of its biggest ever single day jumps in the short span of one-and-a-half months. The last time dollar rose steeply was on October 9 when it gained Rs9.26 in one day, a record breached by today’s movement.
The State Bank of Pakistan says there is a demand and supply gap in the market, which has caused this movement. The central bank, however, refused to comment further saying they will know the exact rate by day end, around 4 pm.
As the day progressed the dollar fell slightly and closed at Rs140.3, but remained higher than the previous day’s closing rate of Rs134 and its previous high of Rs136. Similar trend was observed in the open market where a dollar traded for Rs141.5 in the opening hours and it closed at Rs137.7.
Pakistan is seeking the IMF loan programme because its monthly imports exceed its exports by $2.7 billion, which leaves it with fewer reserves than it needs to pay for essential imports (oil, raw materials, machinery etc), and to repay its foreign loans (more than $90 billion).
According to the latest data, the government has $8 billion in reserves, which is the lowest level of foreign exchange reserves in the last four years and is not enough to sustain even two months of imports. If we don’t increase our dollar reserves, we may default on our payments.
We have reached this situation because during the tenure of former finance minister Ishaq Dar, the government used these reserves to manage the exchange rate. The policy was criticised by both international and local experts. The IMF also wanted Pakistan to shift from a managed exchange rate regime to a free-float regime, allowing market sources to determine dollar value.
After Dar stepped down, the Pakistani rupee experienced several episodes of depreciation against the US dollar. In the first week of December 2017, a dollar was worth Rs106 compared to the current rate of Rs142. This is because the central bank does not have enough dollars to sell in the market, the previous practice that controlled exchange rates.
Since taking oath in August, the Prime Minister Imran Khan has been trying to seek bilateral support to plug our trade gap and ease pressure from our foreign exchange reserves. However, apart from the $1 billion injection by Saudi Arabia, there have been no additional packages received by Pakistan from friendly countries like China, Malaysia and UAE.
The latest round of rupee depreciation comes after the delay in the IMF bailout package, that is still being negotiated. The talks between the government and the IMF as well as the expected package was delayed recently and Finance Minister Asad Umar said Pakistan isn’t in a rush and has two months to finalise the deal.
Since the new government has come in power, the dollar has gone up by Rs14.5 in interbank market and Rs19.5 in open market.