Is the rupee too weak to recover?

In the absence of enough forex reserves, the State Bank of Pakistan (SBP) may only continue watching from the sidelines as the rupee falls from one all-time low to another over the past few months, and most recently during the week that ended on July 22.

Meanwhile, growing political instability becomes the springboard of all kinds of speculations against the rupee's health as well as Pakistan's prospects of dodging what to some sceptics appears to be an 'imminent' threat of defaulting on sovereign loans.

In addition to political instability, structural weaknesses of the external sector, higher global prices of fuel and food commodities, the rise of the US dollar against major currencies, geopolitical challenges facing Pakistan and the delay in the revival of the International Monetary Fund's (IMF) lending, all played their part in making the rupee weak and vulnerable to speculation-driven attacks.

The rupee lost 8.25 per cent of its value against the US dollar within a week: it closed to an all-time low of 228.36 per dollar on 22nd July from 210.95 per dollar on 15th July. This massive decline in the rupee's value within a week, in line with the ongoing trend, is bound to fuel inflation further and upset all earning/spending projections of households and businesses alike. Prominent business lobbies, including the Pakistan Business Council, urge politicians to agree upon a five-year economic reforms agenda to ensure and defend the economic sovereignty of the country.

The currency's value will continue to be determined essentially based on forex demand and supply, which the SBP can influence only with support from the IMF or friendly countries

But the high drama played in the elections of the chief minister of Punjab on July 22 indicates politics in Pakistan may remain oblivious to the gravity of multiple economic challenges facing the country.

Between April 7 (when the then Prime Minister Imran Khan was ousted from power) and July 22, the rupee lost 21.3pc value against the US dollar both due to yawning trade deficit and the growing political instability and uncertainty.

Now, the key question is how long will the rupee continue to decline?

Nobody can answer this question. Not even the government of Pakistan, nor the SBP. Things will become a bit clear when the IMF's board will hopefully approve the revival of its lending programme and release about $1.17 billion for Pakistan, sometime in the first half of August. Even before that China...