Pakistan Dollar Crisis: Pakistani rupee will continue to fall, economy will be destroyed… Experts warn Shahbaz government

Islamabad: International rating agency Fitch Solutions predicted on Tuesday that the weakness of the Pakistani rupee continues, which will have a cascading effect on the country’s economy. The country is already grappling with a depreciating rupee, inflation and short energy supply. According to the New York-based research agency, the rupee’s devaluation was triggered by a decision on January 25 by local foreign exchange companies to lift the self-imposed cap on the exchange rate, The News reported.

The State Bank of Pakistan intervened initially, but the significant depreciation in the rupee is a clear indication that the authorities have loosened their grip on the currency. According to The News, Fitch Solutions noted that their current forecast of the rupee reaching 248 per dollar by the end of the year now looks out of date. After depreciating heavily by 14.36 per cent (or Rs 38.74) in the last three days (Thursday-Monday), it was trading at Rs 268.20 as of 11.04 am at the interbank market as compared to Rs 230.89 on Wednesday.

Pakistan’s economy will shrink by 0.3 percent

The research agency said, “We believe that the rupee’s weakness will continue, especially in Pakistan’s balance of payments position, which is likely to remain weak for several more months.” The agency said that much uncertainty remains at this juncture, so it is difficult to estimate the extent to which the latest devaluation has driven investor sentiment, according to The News. In its analysis, Fitch cautioned that a continued weakening of the rupee would also have macroeconomic implications in the near term.

This could add to imported inflation pressures and eventually lead to a hike in the policy rate from the SBP. The report said that Fitch expects Pakistan’s economy to shrink by 0.3 percent in fiscal year 2022-23. Fitch, however, noted that the rupee’s depreciation would help Islamabad secure more loans from the IMF, which would be positive for the long-term outlook, as it would help ease Pakistan’s balance of payments stress. The world’s fifth-largest population has less than $3.7 billion in state bank reserves, enough for just three weeks of the country’s imports, The News reports.

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