Fading away in value: Speculators behind turmoil in currency market

[A.Rafay]

ISLAMABAD:
Speculators are driving the currency market by exploiting upcoming international loan payments, but the county’s foreign currency reserves are at a comfortable level despite scheduled payments of billions of dollars, says a senior official of the finance ministry.
In a briefing to the National Assembly Standing Committee on Finance here on Tuesday, Additional Secretary External Finance Rizwan Bashir Khan said “we feel speculative activities are resulting in rupee depreciation against the dollar as the real exchange rate (international inflation-adjusted) is appreciating.”
He claimed that the reserves were adequate to pay $1.7 billion to the International Monetary Fund (IMF), which would be due in the next six months. Total outstanding amount was $6 billion, which will be paid to the IMF by 2017, while $2.3 billion had already been returned, he added.
According to a written statement of the finance ministry, in the current fiscal year the government will return $6.2 billion to the international lenders, including $900 million in interest payments.
Under the $11.2 billion IMF bailout package, Pakistan borrowed $7.87 billion from 2008 to 2010 as the Fund did not release rest of the amount due to the government’s failure to implement critical tax and energy reforms.
Khan’s remarks came following an IMF statement that said the country’s foreign currency reserves stood “below adequate level”. After the statement, the rupee again started sliding against the US dollar and touched Rs97 to a dollar in the open market on Tuesday.

Economists have questioned the timing of the IMF statement that came at a time when economic managers are in Washington to hold dialogue with key international players. The statement had been due since November 22, but was released on November 29, the day after the team landed in Washington.
Khan said since fiscal year 2008 the rupee has slid 44% because of far greater outflows than inflows. In the last fiscal year, the rupee fell by 9.1%, the second highest decline after the 16% depreciation in 2009.
Economic condition
In a briefing on the state of
economy, the government’s Economic Adviser Ijaz Wasti made some candid remarks, exposing weaknesses and shallowness of
the finance minister’s economic team.
Explaining the reasons of a record high budget deficit of 6.6% (excluding 2% of debt arrears) in the last fiscal year, Wasti said the “deficit had increased due to rise in oil prices in the international market and import of moong pulse, which led to a high import bill.”
He went on to say that tax collection was affected due to less-than-targeted growth in the agriculture sector, resulting in widening of the budget deficit.
The adviser stood by his statements when Rashid Godil of the MQM confronted him by saying that when there was no federal tax on agriculture how come its growth could impact the budget deficit.
In reality, the deficit stood lower despite huge subsidies due to one-off payment of Rs113 billion by the US on account of Coalition Support Fund.
Wasti claimed that the government had controlled money supply, which was evident from single-digit core inflation that dropped to 9.7% in November over a year ago.
He said energy crisis had affected the economy, shaving 2% off growth rate annually. If the government managed to address the crisis, it would be able to create 400,000 jobs besides collecting Rs52 billion in additional taxes, he added.

Fading away in value: Speculators behind turmoil in currency market – The Express Tribune

 

[AZADPAKISTAN2009]

Pakistan should Change its reserves into Gold, and stabalize its share