A representative image of rupee and US dollar banknotes. — AFP/File
  • The shortage of dollars and worries about the delay in the IMF program kept the rupiah under pressure in July.
  • The rupee depreciated nearly 34.5 rupees, or more than 14%, against the US dollar in July.
  • The rupiah’s steepest drop shows growing concerns about the country’s deteriorating external liquidity situation.

KARACHI: Amid a shortage of dollars and concerns over a delay in an International Monetary Fund (IMF) rescue package, the Pakistani rupee suffered its worst month since 1972, The news reported Saturday.

The local currency depreciated by almost Rs 34.5, or more than 14%, against the US dollar in July – the biggest monthly drop in history on possible default jitters as foreign exchange reserves hit bottom.

It should also be noted that this is also the worst global drop after the Ukrainian currency for the month.

The country is scrambling to stave off fears of trailing Sri Lanka into default this year, as renewed political uncertainties after Punjab’s partial polls raised doubts over its ability to secure its IMF loan tranche.

An economist for Bloomberg Economy in Mumbai, Ankur Shukla said: “What explains the recent fall? The Minister of Finance says it is because of politics. Central bank governor cites soaring dollar.

“The main driver is simpler: the fear that the country will not get help from the IMF fast enough to avoid following Sri Lanka into default.”

The rupiah’s steepest drop shows growing concerns about the country’s deteriorating external liquidity situation. Foreign exchange reserves held by the State Bank of Pakistan (SBP) have fallen by $7.811 billion since February to $8.575 billion in July, enough to pay for about six weeks of imports.

During this time, the Current account deficit swelled to $17.4 billion in July-June (fiscal year 2021-22) from $2.8 billion a year ago. This increase in the current account gap is due to strong imports in a context of soaring commodity prices, particularly oil.

The country’s rupee and dollar-denominated bonds took a hit as concerns over political uncertainty delaying an IMF bailout for the country rattled markets.

Pakistan is trying to assuage concerns that it will follow Sri Lanka into default this year by securing billions of dollars from the Washington-based lender and countries like China and Saudi Arabia.

Arif Habib Limited, in a research note, said political risks and paradigm shifts have weighed on foreign investor/creditor confidence, thus contributing a lot to put the rupiah under pressure.

“While we believe the rupiah still has an inherent long-term depreciation bias, in the short term we expect some stability to be restored. We attribute this short-term stability to inflows from bilateral and multilateral creditors. , contributions from the IMF and the strengthening of certain macroeconomic variables as well as the attempts of the SBP to curb speculation in the market.

However, reports from the request of the chief of the army of the country in the United States playing its part in accelerating $1.2 billion in new financing for Pakistan and expectations of a snap election are calming investors’ nerves.

The the rupee managed to recover some losses to close at 239.37 to the dollar on Friday. It ended at 239.94 on Thursday. The rupiah gained 0.24% on a daily basis.

The local unit rebounded after depreciating sharply by 13.31% in the past 10 trading sessions. However, the Rupee remained under heavy pressure in the curbside market. It lost Rs4 to stand at 244 against the greenback.