Average US dollar to Rupee exchange rate to be Rs 173.53 by June 2020

ISLAMABAD:  The International Monetary Fund’s (IMF) underline assumptions suggest that the average exchange rate at the end of this fiscal year could be Rs 172.53 to a dollar – a depreciation of over 27%, due to weak macroeconomic fundamentals, reveals a latest report of the global lender.

In its staff level report, the IMF has not explicitly stated the exchange rate of Rs 172.53 to a dollar. But a backward working on the basis of current account deficit projections show that rupee would keep losing its value under the IMF programme and beyond it.  The average exchange rate of Rs 172.53 to a dollar by June 2020 means that the year-end rupee-dollar parity would be over Rs 188 to a dollar, said an independent economist who wished to remain anonymous.

The Rs 172.53 to a dollar average exchange rate would stoke the inflation that the IMF has estimated at 13%. The means that the annual inflation rate in this fiscal year is expected to soar to 18%.

Neither the spokesman of the finance ministry nor the central bank spokesperson commented for this article.

The average exchange rate that at the end of the fiscal year 2018-19 was Rs 135.4 to a dollar has been assumed at Rs 198.8 in fiscal year 2022-23 by the IMF. Against the average annual Rs 135.4 rupee-dollar parity, the actual rate was Rs 157 to a dollar by end of June.

IMF’s assumptions show a depreciation of Rs 63.4 to a dollar or 47% in four years (2019-2023). The total loss in the value of the rupee in five years would be Rs 78 or 64%, if the IMF assumptions are correct. The maximum depreciation is assumed in this fiscal year.

Due to steep currency devaluation, the size of Pakistan’s economy will be $312 billion at the end of Prime Minister Imran Khan’s term – a threshold that the country had once achieved in 2017. However, the devaluation has pulled the size down to $284.4 billion at the end of the first year of the PTI  government.

A “flexible market-determined exchange rate and tightening monetary policy by another 1.5%” were the prior actions for qualifying for the IMF programme. However, the IMF has a reason to believe that an overvalued exchange rate was harmful for Pakistan’s economy.

“The legacy of misaligned economic policies, including large fiscal deficits, lose monetary policy, and defence of an overvalued exchange rate, fuelled consumption and short-term growth in recent years, but steadily eroded macroeconomic buffers, increased external and public debt, and depleted international reserves,” said the IMF.