ISLAMABAD: An international credit rating agency on Tuesday forecast that Pakistan’s national currency would depreciate further, exacerbating the imported inflationary pressure across the country in the days to come.

In its bid to revive a stalled $7 billion International Monetary Fund (IMF) loan program, Pakistan agreed to remove artificial controls from its exchange market. The rupee plummeted to a record 24-year low last week after foreign exchange companies removed the cap on the exchange rate. 

The removal of the currency cap has been one of the principal demands of the IMF. Pakistan, with a staggering $3.6 billion in reserves barely enough to cover three weeks of imports, is actively seeking an IMF bailout program to avoid a balance-of-payments crisis. 

In its latest forecast for Pakistan, Fitch Ratings said its earlier forecast of the dollar rising to Rs248 is “now looking out of date.”

“We believe that the rupee’s weakness still has further to run, particularly with Pakistan’s balance of payments position likely to remain weak for several more months,” Fitch said. 

The rating agency said currently there is “a considerable amount of uncertainty” at this juncture, adding that it is difficult to gauge the extent to which the latest rupee devaluation has caused investor confidence to dip. 

It said a weakening rupee would also have broader economic implications in the near future. “In the near term, it could exacerbate imported inflationary pressure, and may eventually result in steeper policy rate hikes from the SOP,” Fitch added. 

While it said that Pakistan’s economy was expected to contract by 0.3 percent in FY2022/23, the rupee’s devaluation would help Pakistan secure further disbursements from the IMF. Fitch said it would be “a positive for the longer-term outlook,” helping Islamabad ease its balance of payments strains. 

An IMF mission is currently in Islamabad till February 9, 2023, to discuss the loan revival. The mission will examine Pakistan’s policies to restore domestic and external sustainability, including strengthening the country’s fiscal position with durable measures while supporting those affected by devastating floods last year.