Rupee sinks to fresh all-time low amid IMF bailout uncertainty

KARACHI: Pakistan rupee tumbled to a record low on Tuesday as a delay in the International Monetary Fund’s support for Pakistan unnerved investors, fearing more losses in the currency.

The local unit fell 0.46 percent to close at 288.43 per dollar in the interbank market. In the open market, the domestic currency dropped by 2 rupees against the dollar. The rupee was selling at 295 per dollar, compared with 293 on Monday, according to the rates provided by the Exchange Companies Association of Pakistan.

The rupee breached its previous record low of 287.85 set on April 5, 2023. The country is awaiting the IMF loan as the $6.5 billion bailout must be revived in order to avert default and increase foreign exchange reserves. Given that its foreign exchange reserves, which are now at $4.2 billion and barely cover one month's worth of imports, Pakistan is in desperate need of funds. The country’s consumer price inflation jumped to a record 35.4 percent in March from a year earlier as food and energy prices spiraled.

“Uncertainty is at its peak. The IMF is being delayed and reserves are running out,” said Komal Mansoor, head of research at Tresmark.

The new round of anxiety follows Finance Minister Ishaq Dar's cancellation of his trip to Washington for the IMF and World Bank spring meetings, started on April 10, at the prime minister's recommendation owing to the nation's political upheaval. He said he would attend the meetings virtually.

Investors were worried that the IMF programme would be threatened once more. “The programme is on track,” the minister assured the nation during a televised speech. Dar claimed that Pakistan had fulfilled all requirements of the IMF's programme review to secure over $1.1 billion in crucial financing for the crisis-stricken country. He claimed that all that was needed was for one country to confirm that it would give Pakistan $1 billion to meet its needs for the balance of payments.

Reports state that Saudi Arabia has pledged $2 billion, while the nation is awaiting the United Arab Emirates’ confirmation of $1 billion. A staff level agreement will be reached once the $1 billion is confirmed, according to the minister.

The IMF wants $6 billion in commitments from friendly countries and multilateral and bilateral lenders to fill the shortfall in external funding. Other factors contributing to the rupee's depreciation versus the dollar include the ongoing political unrest brought on by the conflict between the government and former Prime Minister Imran Khan and a rise in demand for dollars for Umrah. “Umrah demand, political uncertainties, and delay in inflows from Saudi Arabia and IMF putting pressure on local currency,” said Mohammad Sohail, CEO of Topline Securities.

There is still a lot of uncertainty surrounding the USD-PKR trend. Although a steep decline in imports has helped the current account balance, at least temporarily, analysts predict that market sentiment will remain fragile until further clarity about the IMF deal becomes available.