KARACHI: Doubts and fears are growing regarding the country’s economic health, particularly its capacity to pay the import bill for essential items in the coming weeks, as the rupee continues to weaken faster than market expectations.
The central bank’s foreign exchange reserves have plummeted to a nearly nine-year low of $4.34 billion, which has had a significant impact on the exchange rate.
The stock market is also falling, led by political uncertainty and worrying economic indicators. On Tuesday, the market closed at 38,342.21 points, down 3.5%.
Currency experts stated that “despite being managed by the State Bank of Pakistan (SBP),” the rupee has been falling. It closed at Rs228.66 against the dollar on Tuesday.
On December 1, the local currency gained 0.12 percentage points to close at 223.69. The rupee has fallen by 1.25 percent in the last six sessions, indicating that the decline is gaining momentum.
The gap between its rates in the open and interbank markets has widened significantly in the face of a shortage of dollars. This has had a significant negative impact on the economy and has shifted remittances away from the legal banking channel and into the grey market.
According to a senior banker, “a steep decline in the foreign exchange reserves has caused irreparable loss to the economy and eroded business confidence.”
Bankers think that the country will soon run out of petroleum products and other basic necessities like food.
Since June, when China provided $2.5 billion, there have been no significant inflows. Even though imports are low and remittances average $2 billion per month, we are keeping an eye on the outflows,” said currency expert Atif Ahmed in the interbank market.
He stated that the country’s $4.34 billion SBP reserves were concerning and lamented that the current political uncertainty had rendered the country incapable of receiving support from any other nation or donor agencies.
The exporters have been assured by the finance ministry that they will be able to import inputs, but currency experts were still looking for ways to make things better. A currency dealer stated, “We need immediate help to save the country from default and the people from a situation like Sri Lanka.”
Exporters, on the other hand, applauded the decision but said it was too late because they had lost a significant share of the international market, particularly in the textiles industry, where Bangladesh had gained an advantage over the previous six months.
A local textile manufacturing and exporting unit director, Shakil Kakvi, stated, “We received some orders from abroad, but we have already closed several factories due to a shortage of orders and the unavailability of gas.” However, he asserted that not every exporter was receiving orders.
Additionally, some experts suggested that the lack of dollars might result in the rationing of gasoline and diesel over the next two to three months. This would ultimately have a negative impact on trade, industry, and even agriculture, which requires diesel during the harvest season.
For Pakistan, the dollar is essential. A senior banker stated, “We are all watching and waiting for the resumption of talks with the IMF while waiting for Chinese assistance in the form of debt rollover.”