As Pakistan grapples with reinitiating a substantial $6.7 billion bailout program from the International Monetary Fund (IMF), Fitch Ratings, a leading global credit rating agency, believes it is improbable that the financially beleaguered nation will proceed with another devaluation of its currency. The agency observes that the pressure surrounding the rupee has seemingly subsided.
Hong Kong-based Director at Fitch, Krisjanis Krustins, elucidated the rating agency’s stance. He stated, “We currently do not expect a large further devaluation of the Pakistan rupee.” He added that despite the currency’s stability over the past few months, the pressure on the reserves held by the State Bank of Pakistan had been contained, indicating minimal interventions in supporting the currency.
The IMF, a multilateral lending institution, has revealed its collaboration with Pakistani authorities to address currency market issues and other concerns before recommencing the bailout program. This aid is set to expire within the current month.
However, the rupee’s performance hasn’t been encouraging, with a decline of more than 20% after its devaluation earlier this year, placing it among the worst performers on the global scale.
No Further Devaluation of the Pakistan Rupee
Meanwhile, the nation’s dollar reserves have maintained stability, hovering around $4 billion since late February. This is after witnessing a steep fall of over 50% within the past 12 months. This funding is vital for bolstering an economy ravaged by supply shortages, and it may help in averting a potential sovereign default, given the looming debt payments amounting to billions of dollars.
Krustins said that the ongoing program review between the IMF and Pakistan would be concluded soon, possibly post clarity from IMF regarding the budget. He also pointed out the swiftly closing window, as the program is originally set to expire in June. Progress is uncertain leading up to the elections due by October.
On Friday, Pakistan’s Prime Minister Shehbaz Sharif expressed optimism about resuming the IMF’s stalled bailout program. He asserted that the country has already fulfilled all the prior conditions established by the global lender, despite economic adversities.
Based in Washington, the IMF reiterated its commitment to working with Pakistani authorities to address concerns related to the country’s currency market and other issues before resuming the bailout program, which will conclude this month.
To curb the outflow of foreign currency, the government has implemented measures to limit imports, thereby controlling the outflow of dollars.
