KARACHI: Pakistan’s national currency on Thursday recovered 0.51 percent against the US dollar and closed at Rs175.52 following the revival of a stalled $6 billion International Monetary Fund (IMF) loan program, said analysts.
According to the State Bank of Pakistan, the rupee hit a historic low of Rs178.24 against the greenback on December 29. Its upturn on Thursday was the highest single day recovery since December 31.
“The recovery of the Pak rupee primarily owes to the revival of the IMF program and the foreign trade data,” Samiullah Tariq, director research at Pakistan Kuwait Investment Company, told Arab News. “The inflow of $1 billion sukuk proceed also played a key role in the positive market sentiment.”
The IMF executive board on Wednesday completed the sixth review under the Extended Fund Facility (EFF) for Pakistan, allowing the administration in Islamabad to draw $1 billion.
The international lending agency revived the loan program after the government met its several key conditions, including parliamentary backing to central bank’s full autonomy, uniform implementation of sales tax, and energy tariff hikes.
“The authorities’ recent policy efforts to strengthen economic resilience are welcomed. Timely and consistent implementation of policies and reforms remain essential to lay the ground for stronger and more sustainable growth,” Antoinette Sayeh, deputy managing director and acting chair of the IMF board, said in a statement issued after the meeting.
“The Pakistani economy has continued to recover despite the challenges from the COVID-19 pandemic, but imbalances have widened and risks remain elevated,” she continued, adding: “The adoption of amendments to the central bank Act is a welcome step toward strengthening its independence to pursue its mandates of price and financial stability.”
According to the IMF, Pakistan’s economy is set to continue recovering in FY2022, with real GDP growth projected at 4 percent. The fund also believes that inflation is expected to pick up this year before gradually slowing down.
The IMF statement maintained that continued commitment to a market-determined exchange rate and a prudent macroeconomic policy mix would help Pakistan reduce the current account deficit and ease external pressures.
However, it warned that Pakistan was vulnerable to possible flare-ups of the pandemic, tighter international financial conditions, a rise in geopolitical tensions, and delayed implementation of structural reforms.
“Strengthening the medium-term outlook hinges on ambitious efforts to remove structural impediments and facilitate the structural transformation of the economy,” the statement said. “To this end, increased focus is needed on measures to strengthen economic productivity, investment, and private sector development, as well as to address the challenges posed by climate change.”
Analysts said the revival of the IMF program could unleash foreign funding from other sources.
“The revival of the IMF program is an expression of confidence by the international lending organization. It will unlock financing from multilateral and other institutions, including the World Bank and Asian Development Bank,” Tariq added.
However, the country’s stock market did not show optimism and plunged by 114 points during the day to close at 45862.93.
“Investors seemed concerned over the dismal trade deficit data,” Ahsan Mehanti, chief executive of Arif Habib Commodities, said. “Apart from that, there was also an impact of 16 percent reduction in local cement dispatches in the country.”