Business

Why is Pakistani rupee losing value against dollar?

Published

1 year ago

Farwa

With the rupee falling to new lows, stakeholders are concerned that the weakening currency could open up Pakistanis to a new round of inflationary impact, which will hit the lower and middle classes the hardest.

No sector of the economy would be immune from the fallout of the steep devaluation of the local currency — which has lost about 20% this year, among the worst performers in the world.

The rupee has gained and lost value in the past and it will do so in the future as well but this time the curve has maintained its upward trend since quite a few months now.

Economists Ankur Shukla and Abhishek Gupta, in an analysis given on Bloomberg Economics, have compiled the reason why the Pakistani rupee was so weak.

The analysts said that the capital is fleeing Pakistan because there is a growing risk that the International Monetary Fund (IMF) will not deliver a bailout, which is needed for the country to avoid default in the fiscal year starting from July. They suspected that political unrest was probably one of the reasons the Fund was baulking as the aid has been stalled since November.

They also pointed out the impact of political tumult on the rupee, stating that the country’s leadership has been unstable since Pakistan Tehreek-e-Insaf (PTI) Chairman Imran Khan was ousted as the prime minister via a no-confidence motion vote in April last year.

“Khan’s arrest this month has escalated the face-off between him and the government, as well as the army,” they noted, recalling that the rupee plunged to a record low of 299 per dollar after Khan’s jailing but recouped its losses and settled at 285 after his release.

Warnings of a massive drop in the rupee are flaring up, with some analysts forecasting another 20% decline is possible. Both economist also cautioned that the currency will likely fall further if Khan and the government continue to clash and if the IMF chooses not to provide loans.

Adil Ghaffar, chief executive officer at Premier Financial Services Pvt in Karachi also told Bloomberg that therupee may slump to as low as 350 per dollar in June if Pakistan fails to secure the loan.

“The rupee trajectory remains subject to considerable uncertainty as market sentiment is fragile,” Farooq Pasha, an economist in Karachi, said, adding that politics will remain the key risk in the near-term until the elections.

Moreover, bond investors are also growing more nervous, with the extra yield they demand to hold Pakistan’s dollar bonds over US Treasuries climbing above 35% points to a record this month.

Why is Pakistani rupee losing value against dollar?

Pakistan’s dollar bonds are trading at distressed levels, with notes due in 2031 quoted at about 34 cents on the dollar.

The country’s dollar stockpile, which stood at $4.3 billion in mid-May, is also not enough to cover even one month of imports despite heavy restrictions.

Business

Gold prices in Pakistan approach an all-time high.

Published

23 hours ago

Farwa

Following a substantial surge the prior day, gold prices in Pakistan are ascending to unprecedented levels with an additional gain on Thursday, coinciding with a rise in global precious metal rates.

The price of 24-karat gold in the local market rose by Rs700 per tola, reaching Rs277,900, as reported by the All-Pakistan Gems and Jewellers Sarafa Association (APGJSA).

Likewise, the cost of 10 grams of 24-karat gold increased by Rs600, currently priced at Rs238,254.

Globally, gold prices exhibited an upward trend, increasing by $7 throughout the day. The APGJSA reports that the international gold price was $2,682 per ounce.

Notwithstanding the increase in gold prices, the silver market exhibited stability, with the price of silver maintained at Rs3,050 per tola.

In the previous month, gold prices in Pakistan reached an unprecedented high of Rs 277,000 a tola, driven by substantial gains in the worldwide market.

Business

World Bank: Power industry subsidies soar by 400% in just five years.

Published

23 hours ago

Farwa

Ninety-four percent of domestic customers will benefit from the budgetary subsidy in 2024, according to a World Bank report, which credits the increase in protected consumers with contributing to the weight of subsidies.

In the current fiscal year, the electricity sector subsidy has increased by an astounding Rs. 954 billion, from Rs. 236 billion in the 2020 fiscal year to Rs. 1190 billion.

Notwithstanding changes, the circular debt has averaged Rs. 400 billion yearly over the last four years due to the incapacity to minimize losses and inadequate recovery of electricity payments.

According to the World Bank, the government must solve the fundamental problems in the power industry in order to lower the burden of subsidies and circular debt, as rising electricity prices and inadequate tax collection will only serve to worsen the circular debt crisis.

The rise in Pakistan’s power sector circular debt has raised worries from the World Bank (WB) despite an unprecedented increase in energy pricing.

Within the last six years, the debt has grown by 1241 billion rupees, according to the World Bank’s study. Between 2019 and 2021, the debt climbed by 1128 billion rupees.

The electricity sector’s circular debt has been increasing at an alarming rate, according to a World Bank analysis. Between 2022 and 2024, there was a substantial increase of 113 billion rupees.

Pakistan’s electricity industry has 2393 billion rupees in total circular debt as of 2024.

Restructuring is required to solve the circular debt issue, according to the World Bank.

Business

Final settlement: Govt to pay five IPPs Rs 72 billion.

Published

24 hours ago

Farwa

On October 10, Prime Minister (PM) Shehbaz Sharif declared that the agreements with five IPPS would be terminated in the first phase. Sources claim that the government will give Rs 15.5 billion to Rousch Power and Rs 36.5 billion to Hubco.

In a same vein, the federal government would pay Lalpir Power Rs 12.8 billion, Atlas Power Rs 15.5 billion, and Sapphire Power Rs 6 billion.

The sources state that late payment fees are not included in the settlement. With effect from October 1, the agreements with the five IPPs will be considered officially ended.

PM Shehbaz earlier remarked that the termination was carried out with the owners of the IPPs’ mutual permission while presiding over the federal cabinet meeting in Islamabad.

The Prime Minister notified the Cabinet that the only money that will be paid, interest-free, to these IPPs is the outstanding balance.

According to him, the national exchequer will gain over 411 billion rupees from the termination of these contracts, while power customers will save roughly sixty billion rupees.

According to Prime Minister Shehbaz Sharif, it was the result of the arduous teamwork of the entire government. In this regard, he also acknowledged the contributions and assistance of the associated parties. He specifically mentioned General Asim Munir, the Chief of Army Staff, who showed a personal interest in the situation.

The prime minister characterized the development as the start of a trip that will ultimately lead to the advancement and prosperity of the populace.

PM Shehbaz Sharif also brought up the assistance that the Punjabi and Federal governments gave to power users over the summer.