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Continuous fall in rupee value: Pakistan’s only option is to request IMF to review condition

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1 year ago

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  • IMF set limit of 1.25% between interbank, open market rates. 
  • Interim PM selects economic experts to deal with economic woes.
  • Open market has witnessed nosedive in rupee value against dollar.

ISLAMABAD: With continuous fall in the exchange rate, Pakistani authorities have been left with no other option but to request the International Monetary Fund (IMF) to review the Fund’s condition of keeping the difference between interbank and open market dollar rates not more than 1.25%, it emerged on Tuesday.

Amid massive fluctuations in the currency market in recent days, the Ministry of Finance and the State Bank of Pakistan (SBP) were silent over the depreciation of the rupee against the dollar.

However, many official sources claimed that the newly-appointed Minister for Finance Dr Shamshad Akhtar is currently busy getting briefings from different ministries before finalising a prescription to fix the economic ills.

The caretaker prime minister has selected two economic experts, Dr Shamshad Akhtar and Adviser on Finance Dr Waqar Masood, to deal with the economic challenges.

The IMF’s Standby Arrangement (SBA) programme of $3 billion placed a continuous structural benchmark under which the average premium between the interbank and open market rate will be no more than 1.25% during any consecutive five business-day period.

“This flawed structural benchmark has changed dynamics of the currency market as the open market rates will start driving the exchange rate against the earlier practice that interbank used to be the driving force behind the exchange rate fluctuations,” top official sources confirmed while talking to The News.

Now the open market has witnessed a nosedive in rupee value against the dollar and the rate hovered around Rs310 to Rs315 depending upon those who possessed valid traveling documents, including passport, visa and air tickets and those who are just buying dollars owing to speculations.

On the other hand, the interbank market also witnessed an all-time low of Rs299 against the US dollar in the interbank market.

“This practice might continue if the IMF condition for keeping the rate between interbank and open markets not more than 1.25% intact because it has changed the dynamics of Pakistan’s currency market. Now the caretaker government will have to make a request to the IMF for review of this policy structural benchmark,” said a top official.

The SBP has been continuously breaching this condition for the last several days and there is no limit to keep the exchange rate stable keeping in view the volatile environment when Pakistan is desperate to attract dollar inflows at a time when the outflows exceed the inflows with substantial margins.

Pakistan has obtained $2.8 billion in the shape of time deposits and guaranteed loans from China as well as from other multilateral and bilateral creditors. There is another $2.2 billion received by the SBP from the IMF and other bilateral creditors to shore up the foreign exchange reserves but this kind of dollar inflows failed to stabilise the exchange rate.

The currency market remained unstable owing to various factors, including the removal of restrictions on imports after which the current account deficit surged to $1 billion in July 2023. Remittances and exports also dropped against the envisaged targets. All these circumstances put pressure on the exchange rate when the macroeconomic fundamentals are not up to the desired mark.

When contacted, former adviser Ministry of Finance Dr Khaqan Najeeb on Tuesday said that in the short term, the rupee is adjusting due to higher import numbers, clearance of backlog for containers. Falling inflows of remittance and exports and the interbank market doing a catchup with the kerb market in the hope of fulfilling an IMF structural benchmark.

An uncomfortable SBA that may need reconsideration is specifying that 1.25% difference will not be breached between kerb and interbank for five days in a row. Data does point to the breach of the continuous structural benchmark and is appearing hard to maintain, he maintained.

He felt importers are relying on the kerb market as liquidity remains constrained in the interbank. This along with dollar buying as a safe store of value keeps the kerb market rising and the interbank following the rising trend to close the gap between the two rates. He concluded by saying that creating certainty, and a response giving clarity on future economic plans and strategies for meeting the IMF targets by authorities, is necessary.

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Dar chairs the CCOP meeting; Blue World’s bid offer of Rs.10 billion is rejected.

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17 hours ago

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The Foreign Minister/Deputy Prime Minister chaired the Cabinet Committee on Privatization meeting.

Other committee members who attended the conference included the Federal Secretaries of several Divisions, the Ministers of Finance and Revenue, Industry and Food, Commerce, Power, and Privatization.

The CCOP took the PC Board’s recommendation into consideration and suggested that Blue World’s bid of 10 billion rupees for the sale of 60% of PIACL’s shares be rejected. The bid was rejected by the CCOP, who chose to follow the PC Board’s advice.

The government’s determination to sell out PIACL through government-to-government or privatization was reaffirmed by the CCOP.

The CCOP was pleased with the Aviation Division’s evaluation of PIACL’s sound financial standing.

Additionally, the CCOP established a committee, chaired by the Minister of State for Finance, to assess potential transaction possibilities for the privatization of the Roosevelt Hotel and the appropriate modes of adoption in light of existing legal rules.

Prior to its subsequent meeting, the CCOP also ordered that all difficulties be resolved and an agreement for the selling of services to an international hotel be concluded.

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The KSE-100 Index has surged by 790 points, resulting in an all-time peak for the stock exchange.

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17 hours ago

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The benchmark KSE-100 Index increased by 790 points, marking a new all-time high for the Pakistan Stock Exchange (PSX) at 94,982 points.

The record-breaking performance underscores a surge of optimism and investor confidence in the stock market.

As investors responded to favorable economic signals, the market experienced a significant increase of over 500 points in early trading. Later, the KSE-100 Index reached another record level of 94,786 points after adding 594 points to its upward trajectory.

This positive development comes as the State Bank of Pakistan’s (SBP) foreign exchange reserves saw an increase of $84 million, reaching $11.26 billion during the week ending November 8, according to data released by the central bank on Thursday.

This represents an increase of 0.75% from the previous week. In addition, the nation’s total liquid foreign reserves experienced a modest increase, increasing by $33.7 million or 0.21% week-on-week to $15.97 billion.

In contrast, commercial banks’ reserves experienced a decline of $50.3 million or 1.06%, ultimately settling at $4.71 billion.

Furthermore, the economic team of Pakistan has expressed confidence in the discussions with the International Monetary Fund (IMF). Minister of State for Finance Ali Pervaiz Malik, in an exclusive conversation with Samaa TV, claimed talks were moving in a positive direction.

Highlighting improvements in Pakistan’s economic conditions, Malik noted substantial progress over the past six months to a year. He emphasized that Pakistan’s current economic situation has seen significant enhancement, with a reduced current account deficit of only $100 million in the first quarter, a reflection of the government’s strategy to increase remittances and boost exports.

Malik shared that discussions with the IMF are primarily focused on external financing, and while there have been speculations about a potential mini-budget or an increase in the petroleum levy, he clarified that these are currently premature considerations.

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Positive IMF negotiations propel KSE-100 Index above 94,000 points

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2 days ago

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As a result of investors’ optimism about the reported progress in the continuing talks with the International Monetary Fund (IMF), the Pakistan Stock Exchange (PSX) experienced a robust surge.

The benchmark KSE-100 Index of the PSX, which tracks market sentiment, rose 713 points to a new record high of 94,068 points, breaking above the 94,000-point barrier, as the trading session began.

Early in the day, the stock market began its upward trajectory as the KSE-100 Index steadily rose, gaining 574 points to reach 93,932 points. A possible agreement with the International Monetary Fund (IMF) might lead to more fiscal stability and back Pakistan’s economic reforms, which is why investors are so optimistic about the country’s future.

Officials from the Federal Board of Revenue (FBR) informed the International Monetary Fund (IMF) on Wednesday that the government would not be introducing a mini-budget and would instead continue to aim to collect Rs12,970 billion in taxes each year.

In line with continuing discussions with the Fund, FBR sources revealed that petroleum goods will not be subject to the General Sales Tax (GST).

The fact that Pakistan’s tax-to-GDP ratio has increased from 8.8% to 10.3%, a 1.5% gain viewed as a favorable sign of Pakistan’s fiscal policies, has reportedly pleased the IMF, who has voiced satisfaction at Pakistan’s recent economic performance.

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