Pakistan’s rupee falls fast as default fears intensify: Financial Times

[Mav3rick]

Pakistan’s rupee falls fast as default fears intensify

Currency on track for worst week in more than two decades amid concerns IMF deal will not avert crisis

The 7% fall of the rupee to Rs226 to the dollar highlights concerns that a $1.2bn loan disbursement from the IMF might not be enough to avert a balance of payments crisis © Arshad

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Pakistan’s currency is on track for its worst week in more than two decades, reflecting investors’ worries that the country risks following Sri Lanka to become the next emerging economy to default on foreign repayments.

The nearly 7 per cent tumble of the Pakistani rupee to Rs226 to the dollar by Thursday marked the latest setback for the currency, which has fallen sharply this year. If there is no recovery on Friday, it would be the rupee’s sharpest weekly fall since November 1998.

The latest slide reflected mounting concerns that a $1.2bn loan disbursement from the IMF agreed last week might not be enough to avert a balance of payments crisis. Pakistan’s bonds have been among the worst performers in emerging markets this year.

Sri Lanka’s economic collapse and default on its foreign debt in May led to a full-blown political crisis last week, forcing then-president Gotabaya Rajapaksa to flee mass protests into exile.

Sri Lanka’s fall was one of the most stark manifestations yet of a broader fragility in emerging markets, which are feeling the brunt of greater risk aversion among investors and higher commodity prices and interest rates.

However, Pakistan’s larger population, strategic location, and nuclear-armed status mean that a financial crisis there would have more serious implications, analysts said.

“The international fallout from Pakistan’s internal collapse would be much bigger than Sri Lanka,” said Hasan Askari Rizvi, a Pakistani commentator on national and security affairs. “I think there are many outside [powers] who would want to avoid an outright disaster in Pakistan created by an economic collapse.”

Fitch Ratings this week downgraded its country outlook to negative from stable, noting what it called a “significant deterioration in Pakistan’s external liquidity position and financing conditions” this year.

The rating agency said the central bank’s forex reserves had declined to about $10bn by June 2022, down from $16bn a year previously and equivalent to just over one month’s worth of current external payments.

Pakistan’s central bank raised its main policy interest rate 125 basis points to 15 per cent on July 7 in an effort to stem demand for foreign currencies and reduce inflation.

As in Sri Lanka, Pakistan’s growing financial distress is having political repercussions. To meet the terms of a $6bn lending package agreed with the IMF in 2019, Prime Minister Shehbaz Sharif’s government has withdrawn fuel and energy subsidies, causing prices to soar. The subsidy withdrawals have added to the impact of world market price increases caused by the war in Ukraine.

Public anger at soaring prices has already fuelled an electoral upset. On Sunday, voters in Punjab province, Pakistan’s most populous region, handed victory to the party of former prime minister Imran Khan, who was ousted in April. Khan this week called for early elections, and on Wednesday said Pakistan was teetering toward an “economic collapse”.

“We do expect political risk and political volatility to remain quite heightened in the run-up to the next election,” said Grace Lim, analyst with Moody’s, which downgraded its outlook for Pakistan to negative last month. In a research note last week, the credit agency said the country’s ability to complete its current IMF programme “remains highly uncertain”.
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@Mav3rick @FOOLS_NIGHTMARE @muhammadhafeezmalik @SBD-3 @niaz @zaki @maverick1977 @koolio @Ghazwa-e-Hind @ghazi52 @Wood @maithil @UKBengali @Bilal9 @waz @Jango @SQ8 @blain2 @VCheng @farok84 @ziaulislam @Patriot forever @Jungibaaz @RescueRanger @Indus Pakistan @El Sidd

What NONSENSE!

There is absolutely NO risk of default. We are simply going through tough times bought on by political instability, betting/gambling and negative sentiment in the market. This will all settle down very very soon, within 1-2 months Inshallah and USD will return to 200 or under.

 

[Valar.]

Too late for that

View attachment 864099
Imported right now...

Lagta hai Sazish in kay khilaf hui hai.

 

[IbnAbdullah]

Salaam

Last i heard baja is devising a response to china on emergency basis

What sort of response?

 

[Asian.Century]

Even if Pakistan defaults nothing will happen: other than further loans will not be given:

 

[ghazi52]

.,.,
The rupee continued to slide against the dollar on Wednesday, hitting another low of Rs237 in the interbank market.

According to the Forex Association of Pakistan (FAP), the local currency fell Rs4.07 to Rs237 from yesterday’s close of Rs232.93 at 11:50am.

The rupee closed at 236.02, having depreciated 1.31 per cent, according to the State Bank of Pakistan (SBP).

https://twitter.com/x/status/1552260791931473920

FAP chairman Malik Bostan highlighted that there was a need to increase dollar inflows as it would stabilise the rupee.

“The central bank should take strict measures against exporters who are not bringing back their proceeds to the country in due time,” he said.

He further stated that the local currency should be used for trade with Afghanistan as it would save $2 billion in foreign exchange.

Presently, Bostan continued, Pakistan’s inflows were short. “In such a situation, the transfer of $2 billion to Afghanistan [for imports] is increasing our difficulties,” he added.

Komal Mansoor, head of strategy at Tresmark, told Dawn.com that the pressure on the rupee would persist as long as there was a shortage of dollars.

“Exchange companies are offloading their inventory and selling dollars to the bank to bridge some gap but demand far exceeds supply,” she said, adding that “in a desperate move” banks were willing to buy dollars from exporters at a rate even higher than the interbank rate.

Meanwhile, Mettis Global Director Saad Bin Naseer was hopeful that the pressure on rupee would ease in the upcoming sessions ahead of inflows from the International Monetary Fund (IMF) and friendly countries

“Demand from importers has fallen significantly during July,” he said.

“As per the finance minister, total imports so far during July (as of July 25) have reached to only $3.7bn. This will alleviate demand-side pressures significantly and may even keep the current account balance in surplus for July,” he added.

The dollar has come under renewed pressure amid higher demand from importers. Bankers say the “import mafia” has practically drowned the national economy and is still insisting that more imports be allowed while the country is already on the brink of default.

Pressure on rupee to ‘vanish’ soon: Miftah​

On Tuesday, Finance Minister Miftah Ismail said the pressure on the rupee would “vanish” in a couple of weeks.

In a one-on-one conversation with Mosharraf Zaidi, CEO of advisory services firm Tabadlab, Ismail said the inflows of dollars into Pakistan would soon be higher than the outflow, resulting in a stable exchange rate.

“Nobody is happy with surgery, but sometimes it’s necessary,” he said while defending his policy of import curtailment to reduce the dollar outflow — a measure that may slow down economic growth and reduce tax collection at the import stage.

He repeatedly insisted that the fears of a sovereign default were overblown and that the policymakers knew “all the balls that (they) have in the air” i.e. expected inflows of the foreign currency in the next quarter or so.

“This is what I’m trying to do: moderate our purchases (imports) and not slow down our exports. For two to three months, I’m going to do that. (With every passing) week, I have a greater handle on the foreign currency,” he said.

The country burned $80 billion last year to buy foreign goods and services while earning only $31bn against its exports. The resulting gap in dollar liquidity has put pressure on the rupee’s value, which has been depreciating against the greenback.

Ismail said a policy plan would soon be in place. Imports will go down gradually and exports will be up “organically” within three months, he said.

Rupee’s consistent decline​

Between April 7 (when the then-prime minister Imran Khan was ousted from power) and July 22, the rupee lost 21.3 per cent value against the US dollar both due to the yawning trade deficit and the growing political instability and uncertainty.

The rupee had appreciated to Rs204.56 in the first week of July after touching 211.93 on June 22. It then kept losing its value against the dollar but registered a minor appreciation when the country reached its staff-level agreement with the IMF on July 15.

It has continued to fall in every session since then.

Last week, the rupee lost 8.25pc of its value against the US dollar within a week: it closed to an all-time low of 228.36 per dollar on July 22 from 210.95 per dollar on July 15.

By the end of last week, the local currency had lost 22.7pc since Jan 1 and 10.3pc since July 1.

In the opening session this week, the rupee further fell to Rs229.88. The rupee lost 1.31 per cent value against the dollar on Tuesday to close at 232.93 in the interbank market.

 

[Jango]

What NONSENSE!

There is absolutely NO risk of default. We are simply going through tough times bought on by political instability, betting/gambling and negative sentiment in the market. This will all settle down very very soon, within 1-2 months Inshallah and USD will return to 200 or under.

Yes, poori hakoomat aur fauj is waqt Miftah ki inhi 'hopes' par bethi hui hain. Shahbaz Sharif and Miftah literally begged everyone to believe in this hope story last week...

I hope for the sake of the country the hope turns out to be reality, but hope is never a good strategy.

So, how is the sale of SOE's and power plants going?

 

[Imran Khan]

روز روز مجھے کیوں بتانے آ جاتے ہو روپے کے بارے میں روپے کا سالا لگتا ہوں؟؟؟؟؟؟؟؟؟؟؟؟

 

[Wood]

https://twitter.com/x/status/1552212308658880512

 

[maithil]

.,.,
The rupee continued to slide against the dollar on Wednesday, hitting another low of Rs237 in the interbank market.

According to the Forex Association of Pakistan (FAP), the local currency fell Rs4.07 to Rs237 from yesterday’s close of Rs232.93 at 11:50am.

The rupee closed at 236.02, having depreciated 1.31 per cent, according to the State Bank of Pakistan (SBP).

https://twitter.com/x/status/1552260791931473920

FAP chairman Malik Bostan highlighted that there was a need to increase dollar inflows as it would stabilise the rupee.

“The central bank should take strict measures against exporters who are not bringing back their proceeds to the country in due time,” he said.

He further stated that the local currency should be used for trade with Afghanistan as it would save $2 billion in foreign exchange.

Presently, Bostan continued, Pakistan’s inflows were short. “In such a situation, the transfer of $2 billion to Afghanistan [for imports] is increasing our difficulties,” he added.

Komal Mansoor, head of strategy at Tresmark, told Dawn.com that the pressure on the rupee would persist as long as there was a shortage of dollars.

“Exchange companies are offloading their inventory and selling dollars to the bank to bridge some gap but demand far exceeds supply,” she said, adding that “in a desperate move” banks were willing to buy dollars from exporters at a rate even higher than the interbank rate.

Meanwhile, Mettis Global Director Saad Bin Naseer was hopeful that the pressure on rupee would ease in the upcoming sessions ahead of inflows from the International Monetary Fund (IMF) and friendly countries

“Demand from importers has fallen significantly during July,” he said.

“As per the finance minister, total imports so far during July (as of July 25) have reached to only $3.7bn. This will alleviate demand-side pressures significantly and may even keep the current account balance in surplus for July,” he added.

The dollar has come under renewed pressure amid higher demand from importers. Bankers say the “import mafia” has practically drowned the national economy and is still insisting that more imports be allowed while the country is already on the brink of default.

Pressure on rupee to ‘vanish’ soon: Miftah​

On Tuesday, Finance Minister Miftah Ismail said the pressure on the rupee would “vanish” in a couple of weeks.

In a one-on-one conversation with Mosharraf Zaidi, CEO of advisory services firm Tabadlab, Ismail said the inflows of dollars into Pakistan would soon be higher than the outflow, resulting in a stable exchange rate.

“Nobody is happy with surgery, but sometimes it’s necessary,” he said while defending his policy of import curtailment to reduce the dollar outflow — a measure that may slow down economic growth and reduce tax collection at the import stage.

He repeatedly insisted that the fears of a sovereign default were overblown and that the policymakers knew “all the balls that (they) have in the air” i.e. expected inflows of the foreign currency in the next quarter or so.

“This is what I’m trying to do: moderate our purchases (imports) and not slow down our exports. For two to three months, I’m going to do that. (With every passing) week, I have a greater handle on the foreign currency,” he said.

The country burned $80 billion last year to buy foreign goods and services while earning only $31bn against its exports. The resulting gap in dollar liquidity has put pressure on the rupee’s value, which has been depreciating against the greenback.

Ismail said a policy plan would soon be in place. Imports will go down gradually and exports will be up “organically” within three months, he said.

Rupee’s consistent decline​

Between April 7 (when the then-prime minister Imran Khan was ousted from power) and July 22, the rupee lost 21.3 per cent value against the US dollar both due to the yawning trade deficit and the growing political instability and uncertainty.

The rupee had appreciated to Rs204.56 in the first week of July after touching 211.93 on June 22. It then kept losing its value against the dollar but registered a minor appreciation when the country reached its staff-level agreement with the IMF on July 15.

It has continued to fall in every session since then.

Last week, the rupee lost 8.25pc of its value against the US dollar within a week: it closed to an all-time low of 228.36 per dollar on July 22 from 210.95 per dollar on July 15.

By the end of last week, the local currency had lost 22.7pc since Jan 1 and 10.3pc since July 1.

In the opening session this week, the rupee further fell to Rs229.88. The rupee lost 1.31 per cent value against the dollar on Tuesday to close at 232.93 in the interbank market.

Current account surplus for 3 months means they have stopped every import for 3 months. This also will have severe implications for economy itself. And once these restrictions are lifted, imports might explode for some time giving huge CAD. But govt would have weathered the current storm.

 

[ghazi52]

,..,.

 

[Catalystic]

Let it crash and burn.
**** it

 

[Mav3rick]

Yes, poori hakoomat aur fauj is waqt Miftah ki inhi 'hopes' par bethi hui hain. Shahbaz Sharif and Miftah literally begged everyone to believe in this hope story last week...

I hope for the sake of the country the hope turns out to be reality, but hope is never a good strategy.

Everything is dependent on the next tranche from IMF. Miftah, although unsuccessful in getting it done earlier which is his big failure leading us to this worsening situation today, finally got the program back on track and things will normalize Inshallah starting with the release of next IMF tranche. But, anyone who denies what Imran Khan did to IMF program and Pakistan's economy starting February end is doing grave disservice to Pakistan.

Just FYI, I am a big critic of Miftah and also of SS (as a PM); I don't consider any of them capable and the only person who IMO was and is capable of solving the issues most efficiently is Dar! Miftah is just a so-so person, nothing that would impress me.

So, how is the sale of SOE's and power plants going?

I hope we get rid of our ailing SOE's, infact I would rather that we sell business and enterprise retaining only minimum shares so that these businesses and enterprises become productive and that they are no longer misused by various Governments to overpopulate with their political postings.

This would also allow the Government to focus on Governance, Constitution and implementation of Law.

 

[nope]

all these economic hardship are for the common people all the plot owners in khaki uniforms will be fine

 

[Jango]

...the only person who IMO was and is capable of solving the issues most efficiently is Dar!

I was actually going to respond to what you wrote and might agree with 'some' of your points, but this totally caught me off guard. If you really think he is the most capable person we have, then God help us indeed!

I hope we get rid of our ailing SOE's, infact I would rather that we sell business and enterprise retaining only minimum shares so that these businesses and enterprises become productive and that they are no longer misused by various Governments to overpopulate with their political postings.

Agreed in principle. But does that mean you just throw it away to anyone of your choosing with total disregard for the rules and procedures?

The SOE's being sold to Gulf countries has absolutely nothing to do with govt restructuring itself, or taking a strategic shift in management, or cutting losses. It has all to do with us needing $4 billion, and the Gulf countries having us by the balls so to speak, and we need to accept whatever demands they have, else the IMF won't go through with the agreement.

To end, I would just like to ask you this question. If you are a wealthy person, and a shopkeeper comes to you and he wants to renovate his shop and asks you for a loan, but then you find out that the ownership of the shop is in dispute itself and there are high chances the guy will not be the shopkeeper next week or next month, will you give him a loan?

,..,.
View attachment 865649

People need to take a hard look at this chart.

Currencies are devaluing all over the world due to the fed interest rate, but look at the percentages. No one is having wild 5-7% swings in a day. Look at the actual underlying fundamentals ffs, not the end figure.

 

[Indos]

This crisis is made by US, they want to tackle inflation caused by supply side shock with monetary policy ( increasing interest rate ). USA is also still stubborn to not free Iran in exporting their oil and gas without any hurdles.

For Russia invasion and Western sanction on Russia should be just accepted as fate, but those US policy I mentioned above can be changed easily ( not as difficult as stopping war in Ukraine ).

Indonesia Finance Minister dont believe with tackling inflation from supply shock by raising interest rate, but Indonesia can still raise interest rate if our currency deteriorate so deep (increasing interest rate to fight currency depreciation)