Tuesday, January 26, 2021

Indian Rupee, Pakistan’s Economy Headed For Big Trouble

The Pakistan Economy and the Indian Rupee have been under immense pressure so far in 2018. While the Indian Rupee is stumbling and recovering time and again, Pakistani Rupee has been the poorest performing currency in Asia so far in 2018. Where do both these currencies go from here is something that will be a major concern to their respective economies. 

As reported by Khaleej Times, the foreign exchange reserves of the State Bank of Pakistan have plummeted to $ 9 million which raises major concerns. On the other hand, in India, the Reserve Bank of India has yet not intervened to defend the Indian rupee. Neither has the central bank of India shown any signs of hiking the rates aggressively to defend the Indian Rupee.

How the Indian Rupee is headed for big trouble

India is the highest valued emerging market and that puts even more pressure on the Indian Rupee. As much as 70% of India’s current account is placed around Petroleum exports and the soaring prices would escalate the current account deficit by 2.5%. This increased current deficit will bring even more trouble for the Indian Rupee. To add to the woes the tax collections of the Indian government from GST has not met the targets and the political outlook of India can further hurt the Indian Rupee.

Why Pakistan cannot do without a bailout from the IMF

As mentioned above, the foreign exchange reserves of India’s neighbours have plunged to just $9 billion. Elections are just around the corner in Pakistan. The Pakistani Rupee is trending at 122 against USD at present and there is no option left for Pakistan which can avoid a bailout from the International Monetary Fund. The IMF assistance only comes after the new government assumes office in Islamabad. Higher US interest rates will see the Pakistani Rupee only go down all along 2018. The further depreciation for the Pakistani Rupee seems certain.


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