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Pakistan rupee hits fresh lows after IMF talks in Doha extended

Fund delays $6 billion programme revival, stresses removal of subsidies on fuel and energy

The Pakistan rupee on Thursday hit fresh lows against the US dollar as talks with the International Monetary Fund (IMF) to revive a $6 billion extended funds facility remained inconclusive, requiring more time to reach an agreement, Khaleej Times has learnt.

The rupee lost 0.28 per cent against the greenback as it dropped to 202.5 (55.17 against the dirham) in early interbank trading compared to 201.92 a day earlier (55.01 versus the dirham). It ended at 202.01 against the dollar (55.04 versus the dirham).

“The US dollar is in high demand and it is trading at over 203 (55.3 against the dirham) in the open market,” according to forex dealers.

Samiullah Tariq, head of research at Pak Kuwait Investment Company, said the uncertainty over IMF talks doesn’t bode well for the markets.

“Inconclusive IMF talks will not give a positive message to stocks and forex markets, the rupee will remain under pressure against the US dollar and other major currencies,” Tariq told Khaleej Times on Thursday.

The Pakistani rupee continued to lose ground against the US dollar and other major currencies due to uncertainty on political and economic fronts. It shed around 28.4 per cent of its value against the US dollar since the beginning of fiscal year 2021-22 compared to the previous fiscal year’s close at Rs157.54 (42.92 against the dirham).

Forex dealers and the market pinned high hopes on the success of IMF talks, but the Bretton Woods institution gave the government more time to withdraw subsidies on fuel and electricity to revive the EFF programme and release of around $900 million funds.

Pakistan entered a three-year, $6 billion IMF deal in 2019, but about half of the funds are yet to be released as Islamabad had deviated from policies agreed in the last review under the EFF programme.

IMF talks extended

Sources said the IMF will revive or upgrade the EFF once the government will withdraw fuel and energy subsidies to increase the prices in line with the international market trend.

The IMF team, which concluded one-week talks in Doha late on Wednesday, advised the government to take policy action to remove subsidies on fuel and energy. The Fund also expressed concern over the recent government ban on import of non-essential goods that, according to government estimates, will save up to $4 billion annually.

“The IMF also opposed the government’s move to ban the import of about 41 goods to curb the import bill as it is not in line with the EFF programme and the government should reconsider its decision,” according to sources.

For many, the ban was not sufficient to reduce the bill, which is now estimated to remain at $46 billion to $47 billion in this fiscal year while the monthly impact of the import ban was hardly $300 million.

Pakistan Finance Minister Miftah Ismail said the government was committed to reviving the IMF programme and putting the country back on a ‘sustainable growth path’ after talks ended inconclusively on Wednesday.

“IMF officials emphasized the importance of rolling back fuel and power subsidies,” the finance minister told Bloomberg.

The parliament in Pakistan is set to meet at 4pm to discuss the current economic and political situation in the country.

Constructive discussions

An IMF mission, led by Nathan Porter, held both in-person and virtual discussions in Doha with Pakistani authorities.The two sides said that they held ‘highly constructive discussions’ and agreed on the need to continue to address high inflation and elevated fiscal and current account deficits.

Porter also advised the government to come up with serious budget proposals for financial year 2022-23 to resume talks next week.

“The mission has held highly constructive discussions with the Pakistani authorities aimed at reaching an agreement on policies and reforms that would lead to the conclusion of the pending seventh review of the authorities’ reform programme, which is supported by an IMF extended fund facility arrangement,” said Porter after conclusion of the talks.

He added that considerable progress was made during the talks that will help bring stability in macroeconomic indicators of the country. He said there is need to address high inflation and the elevated fiscal and current account deficits, while ensuring adequate protection for the most vulnerable segments of the society.

“The further increase in policy rates implemented on May 23 was a welcome step. On the fiscal side, there have been deviations from the policies agreed in the last review, partly reflecting the fuel and power subsidies announced by the authorities in February,” he added.

“The IMF team looks forward to continuing its dialogue and close engagement with Pakistan’s government on policies to ensure macroeconomic stability for the benefit all of Pakistan’s citizens”, he added.

muzaffarrizvi@khaleejtimes.com