ISLAMABAD: It is stated by the International Monetary Fund that the rupee-dollar parity at Rs113.7 to a dollar while anticipating for the current fiscal year – a rate that implies over 13% depreciation of the Pak rupee against the greenback.
Though the Washington based lender has not conspicuously stated the exchange rate in its latest report on Pakistan, the forethought for the current account deficit and the nominal size of the economy suggest that it considers the rupee as overvalued.
The average exchange rate for the current fiscal year is being worked out at Rs111.4 to a dollar by the IMF which has raised a red flag over the appreciation of the nominal exchange rate during the last fiscal year and emphasized that a more flexible exchange rate will help State Bank of Pakistan to better reach its reserves objectives. Currently the rupee is traded at Rs98.725 to a dollar while for the fiscal year 2014-15 the government has hoped peripheral fall of the rupee against the US dollar.
Although, IMF had claimed during the previous fiscal year that Pakistani rupee was overvalued and worked out its value at around Rs114 to a dollar. After initial fall, the State Bank of Pakistan (SBP) and Ministry of Finance managed to bring down the parity to around Rs98 to a dollar. The average rate during the last fiscal year remained at Rw102.8 to a dollar.
Keeping in view of analysts, a robust rupee may reduce the government’s export target of $26.9 billion but it will push contain inflation.
The country’ total foreign currency reserves slightly dipped to $14.45 billion including $9.398 billion held by the SBP. The report also revealed that while the SBP agreed with IMF that one of the major challenges tackled by the economy is to establish foreign exchange reserves, the central bank differed with its assessment of an overvalued rupee
The IMF said that the SBP comprehended that higher interest rates could help appeal private inflow to finance the current account deficit, but believes that currently the current account deficit was low and the main impediments to private inflows was not the interest rate.
“(Pakistani) authorities do not share IMF staff’s view that the exchange rate is somewhat overvalued, and place greater preference on the nominal exchange rate stability”, said the IMF.