The International Monetary Fund (IMF) wants the government to devalue the Pakistani Rupee (PKR) so fuel prices increase and inflation worsens, which will force the State Bank of Pakistan (SBP) to raise interest rates, according to former Economic Adviser to the Finance Ministry Dr. Ashfaque Hassan Khan.
Speaking to a private news channel, Ashfaque said the Pakistani rupee could be trading around Rs. 235 against the US dollar instead of Rs. 277-278 if SBP does not intervene in the foreign exchange market.
He said there is excess dollar supply in the market and argued that the rupee would appreciate significantly if the central bank stopped purchasing dollars. According to him, the current exchange rate is therefore being managed around Rs. 277-278.
Ashfaque estimated that the combined cost of currency devaluation and high interest rates over a five-year period has reached around $148 billion.
Weaker PKR, Higher Petrol Price
He warned that further depreciation would raise the rupee cost of imported oil because international oil prices are converted into rupees at the prevailing exchange rate. This could push domestic fuel prices higher, adding to inflation and potentially forcing the SBP to maintain or increase interest rates.
Ashfaque also questioned whether a weaker rupee automatically increases exports. Pakistan’s exports were around $32 billion in 2018-19 when the rupee was significantly stronger. Despite the currency later weakening from around Rs. 180 to as much as Rs. 307 per dollar, exports did not rise significantly.
There is a need for selective and aggressive import compression. Pakistan should restrict large-scale imports of luxury vehicles and other expensive goods until its balance of payments position is fully under control, he added.
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