Rupee likely to weaken further

KARACHI: The rupee is expected to remain under pressure against the dollar unless the International Monetary Fund’s (IMF) executive board calls a meeting to approve Pakistan’s request for a bailout package amid a deepening balance of payments crisis, analysts said on Saturday.

The risk of the country’s default has been averted, but the currency market is concerned about when the external financing will materialise amid depleting foreign reserves.

The local unit continued its downward slide for the sixth consecutive session, weakening 0.68 percent on the last trading day, taking its depreciation this week to 8.39 percent and for the year to over 21 percent.

For an IMF bailout, some prior conditions still need to be met. It is also unknown what the devaluation target is. However, any more currency adjustments will likely be completed by the end of this month, allowing Pakistan to present its case before the IMF board of directors, Tresmark wrote in a client note.

Taking this into account, there should be more clarity in the first week of August, and trading should be done as needed until then, it added. The IMF is seeking assurance on Saudi Arabia’s commitment to financing Pakistan before the multilateral lender disburses fresh funds to the country.

“Though bad for optics, this is actually good for Pakistan. Saudi cannot impose conditions on another sovereign state and so the IMF as a conduit makes a collaboration of lenders more effective and a more sustainable bailout,” it said.

“We believe the IMF board approval will go ahead and Pakistan will secure further assistance to avoid a default. There will be major changes in house rules, but the country will continue to be a going concern.”

The State Bank of Pakistan’s (SBP) liquidity profile shows a $15 billion repayment (up to 12 months), but Finance Minister Miftah Ismail said the country required $41 billion in financing for FY2023.

While these numbers are alarming, in reality, most of the repayments are from bilateral and multilateral lenders and will most likely be rolled over or renegotiated.

The only exception is Euro bond/Sukuk holders of which the yields have spiked above 40 percent in recent times. These too peaked on July 19 and have since consolidated. The country has to pay $1.7 billion in debt payments in December.

“As for the CAD [current account deficit], the estimated deficit for the current fiscal year is around $12 billion (last year CAD was $17 billion). With the IMF on board, more potential lenders will also open doors and this CAD number as a percentage of GDP seems to be fundable over the next 12-month period,” Tresmark said.

With interest rate hikes, steep depreciation, and sharp cut back in imports will result in a decline in consumption favourably impacting the CAD, it stated.