KARACHI: As the rupee continues to weaken faster than market expectations, doubts and fears are mounting over the country’s economic health, particularly its ability to pay the import bill for essential items in the coming weeks.

The exchange rate has been primarily hit hard by a steep decline in the central bank’s foreign exchange reserves, which have shrunk to a near nine-year low of $4.34 billion.

The stock market, best by political uncertainty and worrying economic indicators, is also on the decline and fell 3.5 per cent on Tuesday to close at 38,342.21 points.

Currency experts said the rupee has been falling “despite being managed by the State Bank of Pakistan (SBP)”. On Tuesday, it closed at Rs228.66 against the dollar.

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The local currency last rose against the dollar on Dec 1, when it increased 0.12pc to close at 223.69. The decline has gained momentum is recent days, with the rupee going down by 1.25 during the last six sessions.

Amid a shortage of dollars, the gap between its rates in the interbank and open markets has significantly widened, drastically hurting the economy and diverting remittances from the legal banking channel to the grey market.

“A steep decline in the foreign exchange reserves has caused irreparable loss to the economy and eroded business confidence,” a senior banker said.

Bankers believe that the country would soon notice the shortage of petroleum products along with basic essential items like food items.

“There have been no significant inflows since June when China provided $2.5bn. We are watching the outflows despite low imports and $2bn inflows of remittances per month on average,” said Atif Ahmed, a currency expert in the interbank market.

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The SBP’s reserves at $4.34bn were alarming for the country, he said, lamenting that the prevailing political uncertainty had destroyed the country’s ability to get support from any other country and donor agencies.

The finance ministry has assured the exporters of allowing imports for inputs, but the currency experts were still looking for improvement. “We need immediate help to save the country from default and the people from a situation like Sri Lanka,” said a currency dealer.

However, exporters welcomed the decision but said it was too late since they had lost a significant share in the international market, particularly in textiles, where Bangladesh had increased its edge during the last six months.

“We received some orders from abroad, but we have already closed several factories due to a shortage of orders and the unavailability of gas,” said Shakil Kakvi, a director in a local textile manufacturing and exporting unit. However, he said not all exporters were getting orders.

Some experts also hinted that the shortage of dollars could cause rationing of petrol and diesel in the next two to three months, ultimately hitting the trade and industry and even the agricultural sector, which needs diesel during the harvesting season.

“The dollar is the key for Pakistan. We are all watching and waiting for the resumption of talks with IMF while waiting for Chinese help in the form of debt rollover,” a senior banker said.

Published in Dawn, January 18th, 2023