Home TRENDING THE IMF PREFERS A MARKET-BASED RUPEE VALUE

THE IMF PREFERS A MARKET-BASED RUPEE VALUE

THE IMF PREFERS A MARKET-BASED RUPEE VALUE

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IMF demands market-based rupee value.
A restricted exchange rate is to a fault, according to the fund, for the dollar illicit market.

ISLAMABAD: The International Monetary Fund (IMF) has urged Pakistan to allow its currency to appreciate in value in the face of tougher currency controls in the nation, which have led to the emergence of a black market for dollars and discouraged foreign investment through official channels.

Islamabad has not agreed with the IMF’s position, citing the State Bank of Pakistan’s (SBP) refusal to use sacred currency in the interbank market.

According to sources, IMF Mission Chief to Pakistan Nathan Porter encouraged the government to implement the market-based exchange rate at a meeting with Finance Minister Ishaq Dar on Thursday.

They continued by saying that the IMF had strong suspicions that the Pakistani government was manipulating the exchange rate by exerting administrative pressure on banks and currency traders.

According to the sources, Dar disagreed with the IMF’s assertion that the government had any influence on the exchange rate.

Due to differences in opinion about the currency rate strategy as well as problems with the electricity sector, the meeting between Dar and Porter did not provide a resolution.

Even though the country’s foreign exchange reserves dropped to a dangerously low $6 billion as of December 21, the rupee only slightly lost value on Friday, falling to Rs225.64 to a dollar.

The argument that the central bank and finance ministry were attempting to limit the fall of the rupee by ad hoc determining the value for the open market and interbank market has been supported by this.

Because of this, the importers are not getting paid in dollars for their shipments, and the open market rate has only recently turned into a showcase rate.

An industrialist who recently purchased dollars at a rate of above Rs250 said that the spread between the black market and interbank prices for the currency has increased to as much as Rs25 to Rs30 per dollar.

The dollar has only increased by Rs1.69 since the beginning of this month, which is insufficient given the challenging economic climate.

For this report, the finance ministry declined to speak on the record.
There were no hints that the central bank was flooding the market with dollars.

However, the timing of the decision to levy hefty fines on the banks on charges of currency manipulation is one tool in the government and SBP’s arsenal to impact the dollar price.

Before the standing committees on finance of both houses of parliament, SBP Governor Jameel Ahmad had promised that fines will be enforced by the end of November. The central bank hasn’t yet made any announcements in this regard, though, thus far.

The international remittances have also plummeted as a result of the stark variations in rates between the open, black market, and interbank markets.

The central bank has previously issued a warning that the decline in international remittances could be caused by the widening gap between open market and interbank exchange rates.

According to the SBP, foreign remittances decreased by $1.2 billion in just five months, or 9%, to $12 billion between July and November of the current fiscal year.
According to the sources, during the most recent meeting of the SBP board of directors, several attendees questioned whether or not the central bank was pumping money into the market.

Before the IMF agrees to send a team to Islamabad, the market-based currency rate must be implemented. However, due of the tense political climate and the country’s already double-digit inflation, a weaker rupee would lead to imported inflation for which the coalition government was unprepared.

The possibilities of an IMF delegation visiting Islamabad, even in the first week of January, almost vanished, according to the sources, because of the stark differences between the Pakistani and IMF authorities’ points of view.

The only way an early IMF mission is possible is if Pakistan modifies its stance on the currency rate and its energy sector policy.

The next loan tranche of $1.1 billion has been delayed due to the start of the 9th review negotiations, which has also halted any significant inflows from other bilateral and multilateral creditors.

Some members of the administration continue to hold the view that the IMF will need to be lenient since the world may not want to see Pakistan default on its debt.

Pakistan’s $8.5 billion in external debt obligations from January to March 2023 cannot be fully funded with the $6 billion in remaining foreign exchange reserves.
However, there is a chance that the UAE and China, who each have $2 billion in maturing debt, will refinance at this time.

The government will still need to use its reserves to repay $4.5 billion for this.
The $1.9 billion long-term debt repayment to China and the $1 billion in business loans are both included in the $4.5 million in maturing obligations over the next three months.

The $700 million commercial debt that was repaid last month is something that Pakistani authorities are hoping China will renew.

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