Stock market and rupee hitting new lows as Pakistan sleepwalks into deeper economic crisis

Pakistan rupee

Amid indecisiveness of the incumbent government led by Shehbaz Sharif, the Pakistani Rupee has sunk to historic low at 194.18 against the US dollar and the KSE-100 index of Pakistan Stock Exchange fell below the 43,000 mark after it lost 1061 points at the start of the day.

In the interbank market, the Pakistani rupee (PKR) fell to a historic low of 194.18 against the US dollar, losing 1.65 rupees in intraday trade on Monday 16.05.2022.

Pakistan’s stock market falls to its lowest level since December 2020 after fuel prices were left unchanged over the weekend by the Shehbaz Sharif government which is against IMF conditionality for the $1 billion loan tranche.

The rupee has been on a nonstop downward trend and the stock market is giving it its lowest phase since the new government took office, with investors concerned about the economy and putting pressure on the central bank to save the currency.

Why Shehbaz government is failing Pakistan on both internal and external fronts

Pakistani Rupee is continued to lose ground versus the Dollar in the interbank market amid escalating political tensions, uncertain economic conditions, IMF bailout delays, and the government’s hesitancy in making tough decisions.

Government is reluctant to make strong decisions because of the political impact it will have on the overall political canvas as it will support the opposition’s stance.

The recent drop was ascribed to uncertainties surrounding the International Monetary Fund (IMF) program, as well as a lack of government direction on significant economic policies and a roadmap.

The coalition government’s first step in dealing with the rupee’s freefall is to reduce subsidies in order to receive a tranche from the IMF. The coalition Government needs to increase the petroleum products prices but PMLN (Prime Minister’s party) is hesitant to take the burden alone.

According to financial experts, one way forward will be to declare financial emergency in Pakistan as it will reduce the imports and will decrease pressure on rupee. After reducing non-essential goods imports, the government might save up to $18 billion.

Stock Exchange

The Pakistan Stock Exchange had dropped another 900 points, financial markets were collapsing, investor confidence was fading, and the State Bank of Pakistan (SBP) had just $10.44 billion in cash deposit loans from China, Saudi Arabia, and the United Arab Emirates.

The Pakistan Stock Exchange (PSX) nearly crashed last Wednesday as a result of heavy selling, with the benchmark KSE-100 index shedding more than 1,100 points in intraday trading.

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The current loss occurred only two days after the PSX saw a collapse in which the KSE-100 lost 1,447.67 points, according to the PSX website. However, although economic activity was stagnating, political tensions were swiftly mounting.

The analyst went on to say that the market’s sentiment was dampened by a lack of direction and clarity regarding the government’s economic strategy. There are unclear statements on a delay basis that makes the market even more uncertain.

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