Future projection: IMF sees 13% depreciation of Pakistani rupee

Future projection: IMF sees 13% depreciation of Pakistani rupee
By Shahbaz Rana
Published: July 25, 2014

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The IMF’s report on third review of Pakistan’s economy suggests that the IMF values Pakistan’s rupee at Rs113.7 to a dollar. PHOTO: FILE

ISLAMABAD: The International Monetary Fund has taken into account the rupee-dollar parity at Rs113.7 to a dollar while making projections for the current fiscal year – a rate that implies over 13% depreciation of the Pak rupee against the greenback.

Though the Washington based lender has not explicitly stated the exchange rate in its latest report on Pakistan, the projections for the current account deficit and the nominal size of the economy suggest that it considers the rupee as overvalued.



The average exchange rate for the current fiscal year is being worked out at Rs111.4 to a dollar by the IMF.

The IMF also raised a red flag over the appreciation of the nominal exchange rate during the last fiscal year and stressed that a more flexible exchange rate will help State Bank of Pakistan to better reach its reserves objectives.

Currently the rupee is traded at Rs98.725 to a dollar while for the fiscal year 2014-15 the government has expected marginal depreciation of the rupee against the US dollar. The IMF’s report on third review of Pakistan’s economy suggests that the IMF values Pakistan’s rupee at Rs113.7 to a dollar.

Commenting on IMF’s projection Dr Ashfaque Hasan Khan, a renowned economist and member of government’s Economic Advisory Council (EAC) said the forecasts of balance of payments and imports and exports are based on Rs113.7 to a dollar exchange rate and if this rate is not materialized, the Fund’s all projections would go wrong.

During the last fiscal year, the IMF had claimed that Pakistan’s rupee was overvalued and worked out its value at around Rs114 to a dollar. After initial depreciation, the State Bank of Pakistan (SBP) and Ministry of Finance managed to bring down the parity to around Rs98 to a dollar. The average exchange rate during the last fiscal year remained at Rs102.8 to a dollar.

According to analysts, a strong rupee may dent the government’s export target of $26.9 billion but it will help contain inflation.

They added the rupee depreciation will increase the prices of oil and electricity, which the government may not afford at a time when it has failed to ensure power supplies despite massively increasing tariffs.

In its report released this month, the IMF staff noted that greater willingness on part of Pakistan to accommodate downward exchange rate flexibility could play an important role in accelerated reserves accumulation, while helping boost exports over time.

The report stated that although recent grants of $1.5 billion from Saudi Arabia and the successful $2 billion Eurobond issue have eased foreign exchange market pressures and have begun to alleviate balance of payments crisis concerns, the IMF staff suggested that the SBP should not place its bets on one-off inflows.

In addition, it further advised that the central bank should align monetary and exchange rate policy to further boost reserves.

The country’s total foreign currency reserves slightly dipped to $14.45 billion including $9.398 billion held by the SBP.

The report also said that while the SBP agreed with IMF that one of the major challenges faced by the economy is to build foreign exchange reserves, the central bank differed with its assessment of an overvalued rupee.

The IMF said the SBP understood that higher interest rates could help attract private inflows to finance the current account deficit, but believes that currently the current account deficit was low and the main deterrent to private inflows was not the interest rate.

“(Pakistani) authorities do not share IMF staff’s view that the exchange rate is somewhat overvalued, and place greater priority on the nominal exchange rate stability”, said the IMF.

Published in The Express Tribune, July 25th, 2014.



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Apart from appreciation,even if the Govt can contain the Value below 100 till 2018,It in itself will be a big achievement.

Lets see,whether rupee apreciate or depreciate

well sometime make it cheap so i can send back maal

farhan_9909 said:

Lets see,whether rupee apreciate or depreciate

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As long as Pakistan consumes more than it produces, the long term trend for the PKR will remain approximately 10% devaluation annually. The present exchange rate is clearly unsustainable.

There can hardly be any relief in sight unless there is some respite in energy crisis. Pakistan probably will manage a slow depreciation over two years.

Chak Bamu said:

There can hardly be any relief in sight unless there is some respite in energy crisis. Pakistan probably will manage a slow depreciation over two years.

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That is a good point. Lack of proper energy supplies continue to hamper productivity and competitiveness of vast swathes of Pakistan's economy and therefore make the management of the adverse balance of payments much harder.

human 5 saal asay he kaam karna dian..

NWAZ ne phansa diya hai IMF ki chakar main

Simple rule more loan you take the less value your currency has and people will buy your national assets for penuts .... rule used by .... rich warlords of the world better known as corporations

Reserves is what ultimately matters because thats what lures investors

much else is cyclical...a devalued rupee makes our exports cheaper and more competitive but it also makes importing expensive....govt. prints more money and that adds to the problems

first things first - the best way to improve the fiscal situation is to improve the tax base in the country and eliminate corruption. Expose the assholes who hide undeclared, laundered money in foreign banks

these are all things that mean massive 'system' change but bad habits are hard to get rid of.....especially in our society where the people opt to elect crooks and then complain later about it

VCheng said:

That is a good point. Lack of proper energy supplies continue to hamper productivity and competitiveness of vast swathes of Pakistan's economy and therefore make the management of the adverse balance of payments much harder.

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we'll be lucky if we can solve the supply-demand gap/energy shortage (and minimize losses) within the next 5-7 years

If you devalue the currency it will help the exporters but it will adversely effect the consumers with higher prices. If you don't become productive with fixed capital but instead print more then what you see is constant erosion of your money.

This short gap method of printing more to manage your debt will not help you in long run.

Well if at end of 3.5 years we fix the Energy Crisis substantially it should still help with future economic promises

Considering we have 38 Billion worth of projects in the pipelien all Energy and Infrastructure related

Abu Zolfiqar said:

we'll be lucky if we can solve the supply-demand gap/energy shortage (and minimize losses) within the next 5-7 years

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The energy shortage will persist for decades in Pakistan. Decades.

VCheng said:

The energy shortage will persist for decades in Pakistan. Decades.

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Highly optimistic
Provided Pakistan as country survives for decades.

The vicious circle of growth and funds becomes more problematic with the internal and external threats tossed with bad governance. The cost of keeping up with growth in technology will be very hard resulting of further uneasyness in society between have and havenots, finally leading to collapse of nation at large and giving rise to smaller states.

As a longterm policy Pakistan should primarily focus in improving the educational and technical skills of mass, service industry is one sector where a country can earn a lot without investing directly in capital intensive investments. Which will roll the wheels of growth and development, supporting the society at large and giving options for agricultural and manufacturing base to improve there state.