KARACHI: Pakistan’s national currency on Thursday plunged to record lows over a delay in signing a staff level agreement with the International Monetary Fund (IMF) for a bailout loan and amid reports the multilateral body had asked Pakistan to fulfill additional requirements, causing panic in weary markets, currency dealers and analysts said.
The cash-strapped country is undertaking key measures to secure a $1 billion loan from the IMF, including raising taxes, and removing blanket subsidies and artificial curbs on the exchange rate. A move to a market-based currency exchange rate regime is one key actions the IMF wants Pakistan to complete to clear its 9th review, which if approved by its board would release a funding tranche of over $1 billion that has been delayed since late last year over policy differences.
On Thursday, the Pakistani rupee traded at as high as Rs290.18 during the mid-trading session from the previous day’s close of Rs266.11 against the United States dollar in the interbank market. However, the currency closed at Rs285.09 by depreciating 6.66 percent against the greenback, according to currency dealers and central bank data.
The Pakistani currency depreciated by more than 8.2 percent or Rs23.59 during the last two trading sessions amid a delay in unlocking the IMF program and ahead of the announcement of the monetary policy today, Thursday.
“Tremors are being felt in the currency market over the continued delay [in IMF program],” Malik Bostan, chairman of the Exchange Company Association of Pakistan, told Arab News. “Reported additional demands from the Fund to get the program revived are spreading panic in the market.”
He said the exchange rate gap in the open and interbank markets was narrowing but the black market of the dollar continued to flourish.
“The grey market was almost eliminated but due to the delay on the IMF front it is resurfacing,” Bostan said. “Country’s current political situation is also adding to the woes.”
Finance Minister Ishaq Dar rubbished “malicious rumors” of Pakistan defaulting, adding that they were not only completely false but also “belie the facts.”
He said Pakistan’s foreign exchange reserves are higher by almost $1 billion than four weeks ago despite making external payments.
“Our negotiations with IMF are about to conclude and we expect to sign Staff Level Agreement with IMF by next week,” Dar wrote on Twitter. “All economic indicators are slowly moving in the right direction.”
The massive currency devaluation is mainly due to extremely low foreign exchange reserves of $3.2 billion, not even enough to cover imports for a month.
IMF pre-requisites are aimed at ensuring Pakistan shrinks its fiscal deficit ahead of its annual budget around June. Pakistan has already taken most of the other prior actions, which included hikes in fuel and energy tariffs, the withdrawal of subsidies in export and power sectors, and generating more revenues through new taxation in a supplementary budget.
