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July 12, 2019

No target agreed with Pakistan on exchange rate: IMF

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July 12, 2019

ISLAMABAD: In the aftermath of speculations regarding further steep decline of rupee against dollar, the IMF has come forward and stated that there was no agreement on exchange rate target under the Fund programme.

However, official sources said that Pakistan and the IMF agreed to move towards

market-based flexible exchange rate from earlier managed exchange rate as the dwindling foreign currency reserves did not provide space to the central bank to intervene into the market as being done earlier at time when reserves were standing at much comfortable position. The SBP high-ups argued that the central bank would only intervene when it would found any speculative activities in the market. Until and unless the exchange rate would remain reflective of demand-supply gap in dollar inflows and outflows the SBP would not intervene into the market.

Independent economists argued that the exchange rate would continue under pressure mainly because of over ambitious targets on external and internal fronts of the economy. There are reports that the exchange rate on average might touch Rs172 billion against a dollar till end June 2020. However, the IMF staff did not give any figure in its published report after getting approval from the Fund’s executive board on Pakistan’s package of $6 billion under 39 months Extended Fund Facility.

The IMF on Thursday made it clear that there is no agreed target related to exchange rate for the current fiscal year. According to a tweet on Thursday, the IMF’s Pakistan office stated that the published staff report on Pakistan includes exchange rate assumptions which are not predictions. Under the IMF-supported programme there is not agreed target level for the exchange rate, which is market determined.

The country’s net foreign currency reserves held by State Bank stood at negative over $17 billion and with current account deficit in the range of $13 billion the exchange rate would continue to face pressures in months ahead.

Without creating non-debt creating inflows, Pakistan’s exchange rate would remain under pressure so the solution lies in shape of boosting exports, remittances through banking channels and attracting foreign direct investment.

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