Pakistan moved closer to a balance of payments crisis on Friday as the rupee plunged against the US dollar to add an alarming Rs900 billion approximately to the country's national debt – without the country borrowing even a single rupee. “Depreciation of the Pakistani currency by just one rupee against the US dollar enhances the public debt by Rs45 billion,” a senior official told this correspondent. While the rupee-dollar exchange rate continued to hover around 61-1 till early this year, it was now 80 plus for one dollar in the open market, with the market remaining highly volatile. Pakistan's national debt currently stands at Rs 5,899 billion including Rs2,693 billion (or $45 billion) external debt, the official said. As of Oct. 11, Pakistan's foreign currency reserves totalled $7.75 billion, having fallen $570 million in a week. Critically, the central bank's share of this has fallen to $4.34 billion, while commercial banks held $3.41 billion. Economists say Pakistan is shedding reserves at a rate of about $1 billion a month. As a result of deteriorating external balances and dwindling reserves the rupee fell almost 2.8 percent on Friday to a record low of 84.40, having lost 27 percent since the start of 2008. The News daily said on Friday central bank reserves had slid to just under $4 billion as of Oct. 16 and out of that $1.5 billion had been consumed by currency forward booking liabilities. Data shows that the central bank has barely enough foreign currency to cover six weeks of imports. Including commercial bank reserves, it has two months' cover. Newly appointed Finance Advisor Shaukat Tareen's recently stated that the banks' cartel has manipulated the fall of rupee and that the previous government had artificially maintained the stability of the rupee against dollar. However, a major shock came when the exchange rate (one dollar for eighty rupees) imposed by the banks' cartel got the official stamp of approval as the State Bank of Pakistan provided $100 million to the foreign exchange companies at the rate of Rs80 for one dollar. During the previous government, the rupee-dollar conversion rate was determined in the inter-bank. Whatever the reason, the dollar remained available for around Rs60 for several years before the present unprecedented downslide. The official said that the massive jump in the national debt because of the heavy rupee depreciation would colossally affect the budget as interest payments would go up. The burden of debt servicing would also tremendously increase, he said. Another adverse effect of the rupee's slide, he said, would be a mammoth increase in inflation, calculated to be around 25 percent from this single factor alone. Costs of government and private imports would sharply rise. There will be a mammoth impact on Pakistan's oil import bill of around $12 billion. However, the drastic drop of rupee will enable a large number of Pakistani expatriates, who remit their savings to their homes in dollars, to get more. The British pound has not appreciated as much as the dollar though. A source with knowledge of the external position said a big capital infusion was needed in the next one to one-and-a-half months: “Otherwise there will be a serious problem.” The International Monetary Fund said the Pakistan government doesn't want to go through the humiliation of an IMF rescue package. The World Bank has $1.4 billion available under an existing program for Pakistan, but it needs board approval. The good news is that Prime Minister Asif Ali Zardari won sympathy in Beijing with China vowing Thursday to do what it could to help Pakistan avert financial disaster. Zardari, on a visit, is seeking a loan of $1.5 billion or more. China, an old ally of Pakistan, had granted a $500 million concessional loan in April . Besides, “Friends of Pakistan”, a group of potential donors who came together on the sidelines of the UN General Assembly last month, are expected to meet in Abu Dhabi in mid-November. – With agencies __
