Pakistan’s central bank has devalued its currency for the third time since December amid the looming balance of payment crisis and low foreign exchange reserves. “If we rely exclusively on the rupee devaluation to address our balance of payment crises, this will have disastrous consequences,” Ashfaque Ahmad Khan was quoted by Dawn as saying. He said that the interim government holds the reins during the election campaign and might itself be forced to go to the IMF.
Some analysts also predict that Pakistan’s GDP growth may slow down in 2018 for the first time in six years. Pakistan’s foreign-exchange reserves have dropped to the lowest in more than three years, the current-account deficit has widened, while external debt and liabilities as a percentage of gross domestic product climbed to the highest in almost six years in the first quarter.
The devaluation comes amid a global emerging-market selloff that has convinced Turkey, Indonesia and India to raise interest rates and Argentina to secure a $50 billion rescue program from the IMF to bolster investor confidence, Bloomberg reported.
Last month, Pakistan’s central bank — the State Bank of Pakistan — increased its target policy rate to 6.5%, highest in three years. The central bank highlighted the balance of payments issue behind the rationale for hiking rates. “Despite an increase in exports and some deceleration in imports, has further deteriorated due to a sharp increase in international oil prices and limited financial inflows to date,” the central bank had said.
The ruling Pakistan Muslim League (PML-N) is known for its policy to keep the rupee relatively stable but the foreign reserves dropped to about half their peak when the current account deficit widened. Standard Chartered Bank cut its forecast for the rupee this month, predicting it will fall to 125 per dollar by year-end, and saying the IMF may request for the authorities to weaken it even more. The Pakistan Rupee closed at 119.85 against US Dollar on Monday after opening at 115.63. The Pakistan Rupee has devalued in December and in March by 5% by the central bank.