As the government removed control of the exchange rate to comply with IMF demands, the Pakistani rupee surpassed Rs270 against the US dollar for the first time at noon on Monday in the interbank market.
On the third day of freefall, the currency underwent a fresh devaluation of Rs7.50 (or 2.77 percent), hitting a new low of Rs270.10.
According to the central bank, the local currency ended Friday at Rs262.60. Comparing the current three days’ close to Wednesday’s close of Rs230.89, it has fallen cumulatively by Rs39.21 (or 14.50 percent).
Due to the low availability of dollars in the system, the difference between the supply and demand of the dollar has grown significantly.
Pakistan’s foreign exchange reserves have dropped to an alarming $3 point 7 billion and hardly meet the import requirements for three weeks. In August 2021, the reserves totaled $20 billion.
On the other hand, Pakistan needs to pay for its imports at a rate of about $5 billion each month. In addition, the country must pay back $7 billion in foreign debt over the next five months (Feb.-Jun. 2023).
For the purpose of regaining the IMF’s $7 billion loan program, the government reinstated the market-based exchange rate mechanism.
It is anticipated that the program’s revival will aid in persuading multilateral and bilateral creditors to extend new loans totaling $3–4 billion over the coming few months.
The government could overcome the lack of US dollars in the system and, hopefully, narrowly avoid defaulting on its obligations to make international payments with the aid of the new debt inflows.
