Pakistani rupee strikes back at US dollar amid IMF talks

Ahead of the IMF talks starting from today, the Pakistani rupee showed some resilience and brought down the US dollar by Rs1.76 in the interbank trading on Tuesday, reported 24NewsHD TV Channel. 

According to the State Bank, the Pakistani rupee made a recovery after suffering an initial loss when the US dollar hit Rs270 barrier during early trading today. But soon the local unit made a comeback and the American currency was sunk by Rs4.63 making US dollar to be traded at Rs265. However, at the end of the day, the greenback managed to close at Rs267.89, losing Rs1.76.

During last seven working days, the exchange rate of US dollar pinnacled to Rs269 from Rs229.67 after gaining Rs38.33 in its value. 

Interbank closing #ExchangeRate for todayhttps://t.co/p1hNypZm67 pic.twitter.com/VPoC2n9Q9O

— SBP (@StateBank_Pak) January 31, 2023

During Monday’s trade, the rupee was hammered by the US dollar and settled at all-time low at Rs269.63, depreciating by a staggering Rs7.03 and losing its value by 2.61% in a single day. 

Interbank closing #ExchangeRate for todayhttps://t.co/0oJFZSWYth pic.twitter.com/tmmktgx7A2

— SBP (@StateBank_Pak) January 30, 2023

Since last week, the value of local unit has been declined as a result of the decision pertaining to the removal of the dollar cap in the open market on Wednesday.

The Mattis Gobal quoted Fahad Rauf, the Head of Research at Ismail Iqbal Securities as saying: “The rupee continues to remain under pressure, as there is a limited supply… Once the flows come in, the new market rate would be set. ”

There is a little ray of hope for the forex-starved Pakistan which is facing sovereign default, as the IMF is starting a technical discussion with authorities on Tuesday (today), which would continue till Friday (Feb 3) to finalise a memorandum of economic and financial policies (MEFP) for the revival of its stalled tranche.

The authorities have already surrendered the exchange rate cap, allowing more than Rs40 per dollar depreciation in less than a week, and increased the policy rate by one per cent to 17pc to enable the IMF to field its staff mission for completion of talks on 9th quarterly review pending for almost four months.

Pakistan is gripped by a major economic crisis, with the rupee plummeting, inflation soaring and energy in short supply as IMF officials visit to discuss a vital cash injection.

Prime Minister Shehbaz Sharif for months held out against the tax rises and subsidy slashing demanded by the International Monetary Fund, fearful of backlash ahead of elections due in October.

But in recent days, with the prospect of national bankruptcy looming and no friendly countries willing to offer less painful bailouts, Islamabad has started to bow to pressure.

The government loosened controls on the rupee to rein in a rampant black market in US dollars, a step that caused the currency to plunge to a record low. Artificially cheap petrol prices have also been hiked.

"We're at the end of the road. The government has to make the political case to the public for meeting these (IMF) demands," former World Bank economist Abid Hasan told AFP.

"If they don't, the country will certainly default and we'll end up like Sri Lanka, which will be even worse."

Sri Lanka defaulted on its debt last year and endured months of food and fuel shortages that sparked protests, ultimately forcing the country's leader to flee overseas and resign.

In Pakistan, time is of the essence, with Nasir Iqbal from the Pakistan Institute of Development Economics warning the economy had already "virtually collapsed" due to mismanagement and political turmoil.

The IMF delegation will arrive on Tuesday to a nation in panic, still reeling from unprecedented floods that submerged a third of its territory.

The world's fifth-biggest population has less than $3.7 billion in the state bank -- enough to cover just three weeks of imports.

It is no longer issuing letters of credit, except for essential food and medicines, causing a backlog of thousands of shipping containers at Karachi port stuffed with stock the country can no longer afford.

Industry has been hammered by the imports block and massive rupee devaluation. Public construction projects have halted, textiles factories have partially shut down and domestic investment has slowed.

Pakistan is locked in an endless cycle of servicing external debt.

State Bank governor Jamil Ahmed last month said the country owed $33 billion in loans and other foreign payments before the end of the fiscal year in June.

A diplomatic offensive has seen $4 billion rolled over by lending nations, with $8.3 billion still on the negotiating table.

The tumbling economy mirrors the country's political chaos, with former prime minister Imran Khan heaping pressure on the ruling coalition in his bid for early elections while his popularity remains high.

Khan, who was ousted last year in a no-confidence motion, negotiated a multi-billion-dollar loan package from the IMF in 2019.

But he reneged on promises to cut subsidies and market interventions that had cushioned the cost-of-living crisis, causing the programme to stall.

Reporter Ashraf Khan and inputs from AFP