by Pakistan’s moves to loosen its grip on the currency and raise fuel prices signal that the beleaguered nation is finally taking the unpopular decisions needed to secure the International Monetary Fund’s $6.5 billion bailout package.
The rupee fell to 270 rupees to the dollar on Monday, according to the foreign exchange office of AKD Securities Ltd., as authorities allowed the currency to be more market-determined, one of the IMF’s prerequisites for the loan. The government also hiked petrol prices to save this weekend, ahead of the IMF team arriving on Tuesday for a loan review after months of delays on the next loan tranche.
Pakistan is sinking deeper into crisis amid a shortage of dollars and accelerating inflation, making it more urgent for Prime Minister Shehbaz Sharif to secure funds from the IMF. The country is in desperate need of funds as its reserves have fallen to $3.7 billion, less than a month’s worth of imports.
“Pakistan has taken the IMF program seriously in making these decisions even though we are in an election year,” said Suleman Rafiq Maniya, head of advisory at Vector Securities Pvt. “It all depends on the visit of the IMF team and its reaction. These measures are quite painful and have a huge political cost.”
Sharif said his coalition government was determined to complete the bailout after a delay in implementing key decisions, even if it means paying a political cost months before national elections. A difficult task awaits the country’s economic managers led by Finance Minister Ishaq Dar, who will have to convince the IMF that the country is ready to implement other tough measures, including raising taxes and oil prices. essence.
Frontier markets seeking IMF funding are facing increased pressure to loosen their grip on currencies, which will help improve their current account balances. Egypt suffered its third devaluation in less than a year this month. Bloomberg Economics calculations show the rupee is expected to stabilize at 266 to the dollar, according to a note released Monday by Mumbai analyst Ankur Shukla.
In Pakistan, the decline of the rupee this month was triggered by the decision of exchange companies to abolish the limit on the dollar-rupee exchange rate in the open market. The supply of dollars among currency exchange businesses ashore dried up as locals turned to the black market, with the greenback sold at around 10% above advertised rates.
(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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