The Pakistan rupee continues its free fall, while the country’s foreign exchange reserves have plunged to $9.3 billion, which are not enough even to cover imports for two months. It will inhibit imports of essential fuel, cooking oil and pulses. Importers are already feeling the heat of the shortage of dollars in the country. Negativity about the economy has increased after an international credit rating agency has revised Pakistan’s outlook from stable to negative.

Many economists and political leaders are also adding to the negative perception about the economy by citing the situation in Sri Lanka. However, it is clear that Pakistan has made necessary adjustments and it has absolutely no chance of defaulting on international payments, like Sri Lanka. Pakistan’s new government has withdrawn all subsidies on fuel, electricity and gas, provided by the previous government, which had overburdened the economy. The government has already increased the base power tariff by Rs7.91 per unit. The Economic Coordination Committee (ECC) of the Cabinet has approved up to a 335pc hike in consumer-end gas prices, with effect from July 1, to generate about Rs666 billion in revenue for two gas utilities during the current fiscal year. The increase would allow Rs120b surplus revenue to the two gas utilities — Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL) — over and above Rs546b determined by the Oil and Gas Regulatory Authority (OGRA) during the current fiscal year on the request of the petroleum division to make up for the partial recovery of the previous year’s losses.

However, it is a matter of concern that the rupee continues its downward slide against the US dollar despite the signing of a staff level agreement with the IMF for the revival of a loan package. As the rupee suffered its worst weekly fall in over two decades, losing 7.6pc during the week, which ended on July 24, Bloomberg reported that the State Bank of Pakistan (SBP) was discouraging trading in the inter-bank market, asking commercial lenders to manage import-payment requests from their own inflows, such as exporter accruals and remittances. If the bank still needs to borrow, it must seek permission from the monetary authority, the report added.

The rupee hit a new low of Rs232 in the interbank market on June 25. Experts say the rupee is under pressure after political uncertainty over the Punjab chief minister election. Importers have fast-tracked opening of their letters of credit in view of the rupee’s fall, while exporters are also parking their money abroad to maximise their returns. Delays by exporters in an effort to maximise their rupee earnings has wreaked havoc on the exchange rate causing a significant shortage of the greenback in the market, experts say. Between April 7, when Prime minister Imran Khan was ousted from power, and July 22, the rupee has lost 21.3pc value against the US dollar.

However, the SBP attributed the rupee’s fall to the “market-determined exchange rate system” under which the current account position, news stories and domestic uncertainty contribute to the daily currency fluctuations. Finance Minister Miftah Ismail has also reiterated confidence that the pressure on the rupee would decline in weeks. He said the pressure on the rupee was due to the political environment as well as the fact that import payments were being made for shipments from June. “Imports of $80 billion were made during the last fiscal year. We are still making payments for energy commodities purchased last month. Therefore, the rupee is under pressure. However, as we are importing less in July, its effect will be reflected in August,” he told Radio Pakistan.

Earlier, SBP Acting Governor Dr Murtaza Syed said market concerns about Pakistan’s financial position were “unwarranted” and they would dissipate in weeks. “Pakistan’s $33.5 billion external financing needs are fully met for the financial year 2022-23. Pakistan is being unfairly grouped with more vulnerable countries amid panic in global markets due to a commodity supercycle, tightening by the US Federal Reserve and geopolitical tensions,” he informed the media.

Another matter of concern for the country is fast depleting foreign exchange reserves. According to data released by the State Bank of Pakistan (SBP) on July 15, its reserves were just $9,328.6 million, down $389 million compared with $9,717.5 million on July 7. According to the central bank, the decrease had come mainly due to external debt repayments.

The negative perception about the economy was also augmented after the international credit ratings agency Fitch revised Pakistan’s outlook from stable to negative, citing several reasons for the downgrade, including adjustment risks, financing, political risks and declining reserves. It noted a “significant deterioration” in Pakistan’s external liquidity position and financing conditions since the start of the year. While the ratings agency assumed the IMF executive board would approve the staff-level agreement with Pakistan, it saw considerable risks to implementation. It also saw risks to continued access to financing after the expiry of the extended funded facility (EFF) supported programme in June next year amid a “tough political and economic climate”.

It is clear that Pakistan is mainly facing problems because of political instability. All previous governments faced agitations from their political rivals. Protests start against the government in Pakistan weeks after its installation. This tendency must end now to ensure political stability in the country. For it, an all-out effort should be made to ensure fair and free elections in future.