Economists are estimating that with the adjustment in exchange rate during this fiscal year, the country's external debt and liabilities burden, in term of rupee, will increase by over Rs 170 billion. The Pak Rupee had depreciated against the US dollar by some 1.3 percent in the interbank market on Friday. Touching the intra-day high level of Rs 109.50, greenback end of the session a dollar was being traded at Rs 107 in interbank market on Friday as compared to Rs 105.50 on Thursday, which reflected some 1.4 percent deprecation of the rupee against the US dollar in a single day. Since beginning of this fiscal year, Pak rupee has depreciated by some Rs 2.10 to the dollar. As on 30th June 2017, the exchange rate in interbank market was Rs 104.9 to the dollar.
SBP has already confirmed the devaluation of Pak Rupee saying that this movement in the exchange rate is based on demand and supply of foreign exchange in the interbank market. SBP is of the view that this market-driven adjustment in the exchange rate will contain the imbalance in the external account and sustain higher growth trajectory.
"With respect to the currency depreciation in Pakistan, where it leads to some benefits in the form of support to exports and a tool to limit the unnecessary imports, there are some negative impact on inflation and debt-servicing", said Khurram Schehcad an economist at JS global.
"Historical evidences, as per some domestic studies, show that the rate of inflation raises on average by around three percentage points due to one rupee change in Pak rupee value," he cited. In addition, the devaluation will also increase the external debt burden on the economy. Assuming the external debt at $83 billion (the level of FY17), one rupee change in exchange rate will lead to add about Rs 83 billion to the foreign debt quantum in rupee term, besides Rs 2 to 4 billion of interest cost. In short, one rupee devaluation of rupee will cost Rs 85 to Rs 87 billion to the external debt, Khurram mentioned.
He said that there is need to work out the cost and benefits of exchange rate changes thoroughly pondering upon all aspects, while formalising the economic policies and taking such key decisions.
During initial five months (July-Nov) of the current fiscal year, the government has made debt-servicing of some $2.6 billion, however, at the same time, the federal government has raised an amount of $2.5 billion through auction of $1 billion Sukuk and $1.5 billion worth Eurobond in the international market on November 30, 2017. Therefore, as per estimates, external debt and liabilities remained about $83 billion.
According to State Bank of Pakistan's (SBP) statistics with an exchange rate of Rs 104.9, the country's external debts stood at Rs 8.330 trillion. Economists says that with current (Friday) Rs 107 exchange rate, the external debt will be calculated at Rs 8.497 trillion.
Similarly, the cumulative external debt and liabilities have reached Rs 8.878 trillion mark in December up from Rs 8.705 trillion in June, showing an increase of about Rs 173 billion.
"Definitely, Pakistan's external debt burden in term of rupee will surge after current devaluation of rupee to the dollar," Samiullah Tariq of Arif Habib Group said.
He further said that not only the principle amount of external loan will increase but also the cost of interest paid on debt surge. The debt burden may increase further if Pak rupee depreciated more, he said.
SBP is already expecting that the exchange rate will continue to reflect the demand and supply conditions. As the same time SBP said that it stands ready to intervene, in case speculative and/or momentary pressures emerge, for smooth functioning of the foreign exchange markets.
Economists said that with current devaluation of the rupee, home remittance would also post some growth as a number of overseas Pakistanis were sending remittances through Hundi and Hawala due to massive difference in the interbank and open currency market rate.
Copyright Business Recorder, 2017