KARACHI: The rupee fell against the dollar on Tuesday as Pakistan began a final round of negotiations with the International Monetary Fund to unlock critical financing required for a crisis-hit...
KARACHI: The rupee fell against the dollar on Tuesday as Pakistan began a final round of negotiations with the International Monetary Fund (IMF) to unlock critical financing required for a crisis-hit economy.
The local currency ended at 276.28 per dollar in the interbank market, 0.35 percent or 0.98 rupees weaker than Monday’s close of 275.30.
An IMF delegation and the government's technical-level negotiations were said to be over, but policy-level negotiations were scheduled to begin on Tuesday.
Since January 31, the IMF visiting mission has been in Islamabad to resolve the fiscal policy disagreements that have prevented the release of more than $1 billion from the $6.5 billion bailout package signed in 2019.
Since November, the loan programme has been stalled. On plans for fiscal consolidation, Islamabad and the mission were unable to agree.
However, it appears that the government is prepared to take drastic measures, such as paying off the energy sector's circular debt, eliminating fuel subsidies, raising electricity rates, and raising the general sales tax.
Forex reserves of the State Bank of Pakistan have dropped to a dangerously low level of $3.1 billion, which is only enough for less than three weeks of imports.
The rupee has been one of the worst-performing currencies in the world with a fall of 36.6 percent over the past 12 months.
Since it’s expected that the IMF programme would shortly resume, the FX market was stable, said an analyst.
“There is some profit-taking in the open and grey markets, as you can see. The supply of dollars has increased while demand has decreased. Despite being a very minor portion of the market, it just illustrates how sentiments are shifting,” he added.
In the open market, the local unit gained three rupees to close at 280 per dollar, according to the rates provided by the Exchange Companies Association of Pakistan.
After months of artificially managing the exchange rate, the government finally caved into IMF’s key pre-condition to resume talks allowing PKR to float freely in late January.
“Given the ongoing talks with the Fund until February and negotiations on major fiscal reforms, we believe the PKR will continue to remain volatile in the short term stabilizing as IMF review concludes and other bilateral and multilateral flows start pouring in,” said Arif Habib Limited in a report.
Given the significant deterioration in external reserves position and repayments of more than $2 billion of commercial debt previously anticipated to be rolled over, “we now expect Jun-23 and Dec-23 PKR/USD closing rate of 275 and 290 respectively,” the report stated.