ISLAMABAD (Eshfak Mughal):- Finally, the Federal Govt led by Prime Minister Shehbaz Sharif has started to compliance of prior conditions of the International Monetary Fund (IMF) by allowing market based exchange to resume loan program.
Local currency was dropped by Rs.24 or 9.6 percent today after removing the cape on dollar rate against Pak Rupee. This was the second biggest one drop in a single session after 1998 9.9 percent in the history of the country. Such a huge decline in PKR against the US dollar was witnessed after almost 25 years. Rupee at interbank and open market was traded at Rs 255.43 and Rs 258.
Reliable sources told Voice of Pakistan that the market based exchange regime was dire needed step to send a message to the world that the country is serious for the revival of IMF program especially when a senior official of US Treasury is on visit to Pakistan. The government is also likely to promulgate Presidential Ordinance within few days to announce mini budget worth Rs200 of 300 billion, sources further added.
The economic experts have also welcomed the decision to allow market based exchange regime. They say that the dollar appreciated by Rs24 against PKR within single day. This increase indicating that US currency could cross Rs290 if the prior condition of the IMF could not meet within few days.
While commenting on the decision, former finance minister Dr Hafeez Pasha and Salman Shah said that the government has given an indication to the market of its seriousness to comply with the IMF conditions and implementation has been started with market based exchange rate to be followed by increase in electricity and gas prices as well as petroleum levy and taxation measures. Market based exchange rate would have positive impact on the economy, however, it would fuel inflation which is already very high at the moment.
Former Finance Minister Salma Shah said that the Finance Minister Ishaq Dar has damaged to the economy by holding rupee at a particular level during the last four months and consequently the dollar instead of official channel was moved into black economy. As a result, he said that remittances, imports and exports have been adversely affected.
He said that market based exchange rate would be one of the major adjustments in terms of the IMF programme but a temporary solution for the economy that requires energy, taxation and expenditure reforms.
Shah said that adjustment in exchange rate would have fiscal implication and to deal with them taxes have to be imposed and expenditure, especially the size of the government would be reduced besides privatization of bleeding SOEs.
Analysts believe that the currency depreciation and increase in energy rates will increase the cost of doing business in the country which will not only fuel the inflation but also squeeze the exports.