IMF is the Reason behind rupee’s recent drop against the dollar in the interbank market has sparked concern amongst investors and businesses alike. In this article, we will delve deeper into the reasons behind the rupee’s drop, how it is affecting the economy, and what steps can be taken to mitigate the damage.
The IMF, according to officials, wanted to openly promote the poor but had insisted on several policies that would ultimately harm the low-income groups.
Reasons for the Rupee’s Drop:
One of the primary reasons behind the rupee’s drop is the delay in the International Monetary Fund (IMF) bailout package. The IMF had agreed to provide Pakistan with a $6 billion bailout package to help stabilize the economy, but the funds have been delayed due to various reasons. This delay has led to a decline in investor confidence and resulted in a fall in the rupee’s value. One of the reasons for the devaluation of the rupee is the IMF’s funding lag.
Another factor contributing to the rupee’s drop is the widening trade deficit. Pakistan’s imports have been rising faster than its exports, resulting in a widening trade deficit. This deficit has put pressure on the country’s foreign exchange reserves, making it harder to support the value of the rupee.
Effects of the Rupee’s Drop:
The rupee’s decline is having a ripple effect across the economy. One immediate effect is the increase in the cost of imports. As the value of the rupee falls, it takes more rupees to buy the same amount of goods in other currencies. This translates into higher prices for imported goods, which can lead to inflation.
Another effect of the rupee’s drop is the rise in the cost of servicing Pakistan’s foreign debt. The country has a significant amount of external debt, which needs to be serviced in foreign currencies. As the value of the rupee falls, it takes more rupees to pay off the same amount of debt in foreign currency, resulting in higher debt servicing costs.
Steps to Mitigate the Damage:
To mitigate the damage caused by the rupee’s decline, several steps can be taken. One of the most important steps is to address the root causes of the rupee’s drop. This includes taking measures to reduce the trade deficit, increase exports, and attract foreign investment. The government can also explore alternative sources of funding to reduce dependence on external loans.
Another step that can be taken is to manage inflation. The State Bank of Pakistan can use monetary policy tools to control inflation, such as adjusting interest rates and controlling the money supply.
Conclusion:
In conclusion, the rupee’s decline is a cause for concern, and it is important to take steps to mitigate the damage. Addressing the root causes of the rupee’s drop, managing inflation, and exploring alternative sources of funding are some of the measures that can be taken. With the right policies and measures, the economy can stabilise and the rupee can regain its value in the long run.