On Tuesday, the Pakistani rupee experienced a slight uptick of 0.02% or Rs0.07, reaching Rs285.35 against the US dollar in the interbank market. Nevertheless, financial analysts are predicting another wave of currency devaluation in light of the upcoming renewal of the IMF loan program.
The IMF has reiterated to the government the necessity of meeting three stipulations to restart its $6.5 billion loan program, one of which is re-establishing the market-determined exchange rate. Prime Minister Shehbaz Sharif and IMF Managing Director Kristalina Georgieva have been in dialogue regarding the resumption of the stalled bailout package, which is set to expire on June 30, 2023.
The challenges of predicting rupee-dollar parity in the event of a market-determined exchange rate reintroduction. Yet, he cautiously projected a potential 5-10% rupee devaluation if Pakistan complies with the IMF’s condition.
A depreciation of this magnitude could propel the rupee to an unprecedented low within Rs300-310/$. This follows the rupee’s historic low on May 11, 2023, when the exchange rate plummeted to Rs299/$ in the interbank market amidst political unrest following the arrest of ex-Prime Minister Imran Khan.
In contrast to the stable exchange rate of around Rs285/$ in the interbank market, the open market has continuously declined recently. This suggests that the government has re-established control over the rupee in the interbank market.
The Exchange Companies Association of Pakistan (ECAP) reported a further decline of 0.32% or Rs1 on Tuesday, marking a new all-time low of Rs312 against the US dollar in the open market. Consequently, the exchange rate discrepancy between the interbank and open market has expanded to a near-record Rs27.
Read: Finance Minister Dar Announces Completion of IMF Review, Addresses Funding Gap
Experts stated that if Pakistan receives new foreign funding before the program’s resumption, the rupee could be partially recovered in the open market.
Financial market conversations suggest that China and Saudi Arabia may be willing to make new foreign deposits to Pakistan shortly.
The upcoming FY2023-24 budget is expected to be closely scrutinized for any signs of alignment with IMF recommendations. This would signal an agreement between both parties to restart the loan program, which has been on hold since November 2022.
Despite previous unsuccessful negotiations with the IMF since taking office again in September 2022, Finance Minister Ishaq Dar has directed his ministry to share budget documents with the IMF.
The IMF will sign an agreement with Pakistan before the program expires on June 30, 2023, and there is a potential rupee pressure in June due to a $3.7 billion foreign loan repayment amidst critically low foreign exchange reserves.
