Tuesday, May 6, 2008

Pakistan Rupee in Sharp Decline

Pakistani Rupee has hit a new low at Rs. 66.00 for a US dollar. The rupee decline seems to have accelerated against the weak US currency recently amid reports of rising imports, stagnant exports and falling foreign exchange reserves held by the State Bank of Pakistan.

“The fast erosion in the central bank reserves is creating pressures on the rupee,” the treasury dealer Rehanuddin at Invest Cap told the Gulf Times.

The central bank has so far lost around $4bn in the last five months to $12.65bn this week over $16.48bn on October 31. Analysts say the reserves will dwindle to $10bn by the end of the fiscal year on June 30. “Political uncertainty, lack of foreign investment and import pressures have badly hit reserves,” Aqeel Ahmed, senior analyst at First Cap Securities, said.

"The import pressure is rising rapidly on high oil prices, our exports are not increasing due to food shortage while foreign investment is also slow and all these factors are contributing to the weaknesses of the rupee," said Syed Nabeel Iqbal, the chief of trading and research at Karachi-based Khanani & Kalia, one of the largest foreign exchange firms in the country.

According to market sources, three major Pakistani companies - Lucky Cement, the National Bank of Pakistan and Habib Bank - are planning to float Global Depository Receipts (GDRs) amounting to close around 1 billion dollars.

State-owned Oil and Gas Development Company Ltd is planning to float its bonds to be exchangeable with its lucrative stocks. It is hoped that the major privatization will help boost Pakistan's dwindling foreign currency reserves.

China announced in April it will provide Pakistan with 500 million dollars in balance-of-payment support.

'All this is positive news which may help the rupee in maintaining stability in its declining path, but when all these positive factors will figure in is a big question,' said said Khurram Shahzad, senior analyst at Invest Cap Securities.

Failure by Pakistan to arrest any further significant decline in rupee will accelerate inflation and add to the misery of the people already suffering high prices for basic commodities.

The bottom line, however, will be the competence of the new economic team in charge of Pakistan's finance and treasury in dealing with the challenges and taking advantage of the opportunities. Given the terrible track record of the current Finance Minister Mr. Ishaq Dar in the Sharif government of the late 1990s, it is hard to be sanguine about the prospects of Pakistan's economy.

Any hope of recovery will depend on how soon the Pakistani ruling politicians can rise above the nepotist politics and choose competent technocrats to navigate the Pakistani economy through troubled waters.

Sources: Gulf Times
Business News

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