‘No agreement with IMF on rupee-dollar parity’

KARACHI: State Bank of Pakistan (SBP) Governor Reza Baqir on Tuesday dispelled a perception that Pakistan agreed with the International Monetary Fund (IMF) to bring the rupee to a certain level against the US dollar.

Baqir, in a briefing to analysts, said the central bank’s measures brought the exchange rate close to real effective exchange rate, which eliminated non-oil trade deficit.

“There is no agreement (with the IMF) on bringing exchange rate to a certain level,” analyst Fahad Irfan from brokerage Alfalah CLSA quoted the governor SBP as saying in a brokerage note. The central bank’s governor discussed the causes of the recent economic challenges, remedial actions and economic outlook.

The IMF Executive Board last week approved a three-year, $6 billion loan package for Pakistan, to help the country avert the balance of payment crisis. The program has been linked with conditions to reduce current account deficit and bring fiscal consolidation.

The executive board’s approval allowed for an immediate disbursement of about $1 billion. The remaining amount will be phased over the duration of the program, subject to four quarterly reviews and four semi-annual reviews.

The program is also linked with a flexible, market-determined exchange rate to restore competitiveness, rebuild official reserves, and provide a buffer against external shocks. “This will be supported by an appropriate monetary policy to shore up confidence and contain inflation, conducted by an independent central bank,” IMF said in a latest country report.

The IMF said the SBP has agreed to gradually scale back its short swap/forward foreign exchange position to $4 billion by the end of the program to remove future drains on its reserves.

Baqir further said comparing exchange rate movement with Egypt is not fair due to stark difference in the economic position of both the countries. The rupee has lost more than 50 percent of its value since December 2017, stoking inflation and putting pressure on the central bank to arrest the currency freefall.

Analysts said the SBP governor was optimistic as the main causes of the crisis had been addressed. “Pakistan’s current account deficit is less than stressed and is narrowing,” Baqir said. “After entry into the IMF program Pakistan can access multilateral/bilateral sources to meet its external financing needs.”

The IMF-supported program is expected to coalesce broader support from multilateral and bilateral creditors in excess of $38 billion, which is crucial for Pakistan to meet its large financing needs in the coming years.

On interest rate, the SBP governor said monetary policy committee is an independent body and it will decide the rates. The central bank is using updated internal inflation forecasting models that serve as the input to the decisions, he added. The central bank pushed up interest rate to 12.25 percent.

Topline Research revised up inflation forecast to 12-13 percent for the current fiscal year from its earlier estimates of 11 percent. “Further, we expect another hike of 100-200 basis points in interest rate by December 2019.”

Baqir told the analysts that fiscal slippages in the form of poor tax collections, loss making public sector enterprises and an inefficient energy sector resulted in debt accumulation.