The ongoing political uncertainty in Pakistan with the country’s Prime Minister Imran Khan dissolving Parliament on Sunday and calling for early elections has already started impacting the Covid 19-hit economy. The Pakistani rupee has depreciated steadily in the last one month. At present, the rupee is pegged at about 184 to a US dollar. In March alone, the value of the rupee has eroded by 3.2 per cent.
In July last year—the beginning of the Pakistani financial year, the country’s currency was pegged at around 158 to the US dollar. A depreciation of the currency would mean that the country’s import bill will rise, especially at a time when global crude prices have surged following the Russia-Ukraine conflict.
“Structurally, the rupee’s humiliation is due to growing external indebtedness — the PTI government added $20 billion to the stock of the external debt,” Karachi-based Dawn said.
Besides petroleum products, Pakistan imports a large chunk of its total requirements of edible oil, including palm, soyabean and olive from countries such as Malaysia, Indonesia and Brazil among others.
The country’s foreign exchange reserves have also fallen in March, as Islamabad repaid a chunk of external debt, which includes a syndicated loan facility from China. According to the SBP data, the foreign exchange reserves as on March 25 was at $18.554 billion — the lowest since October, 2020. In the beginning of March Pakistan’s forex reserves stood at $22.668 billion while in July it was $24.776 billion.
A foreign policy analyst told India Narrative that the rise in political uncertainty will continue to put pressure on the country’s currency, which could even depreciate further in the coming days.
“Such instability, naturally, will have a direct impact on the economy, the currency will be hit immediately..we are seeing that happening already and the trend may even continue for sometime,” the analyst said.
Depreciation in the currency along with the surge in global oil prices have pushed inflation.
The International Monetary Fund, which approved disbursement of $1 billion under its $6 billion loan programme, has expressed concern over policy continuity in Pakistan. The Moody’s Investor Service termed the uncertainty as credit negative.