Rupee hits record low amid political unrest, IMF bailout delay concerns

KARACHI: Rupee tumbled to a record low on Wednesday as political unrest sparked by former prime minister Imran Khan’s detention increased Pakistan’s default risks and raised the possibility of delaying the International Monetary Fund bailout.

The local unit fell 1.85 percent or 5.38 rupees to close at 290.22 per dollar in the interbank market. The rupee breached its previous record low of 288.43 set on April 11.

In the open market, the domestic currency dropped by 7 rupees against the dollar. The rupee was selling at 297 per dollar, compared with 290 on Tuesday, according to the rates provided by the Exchange Companies Association of Pakistan.

Following the tragic altercations between the police and Imran Khan’s supporters after his arrest on corruption allegations on Tuesday, the political crisis in the nation grew worse. According to the government, PTI followers of Khan attacked significant government structures and harmed both private and public vehicles.

As security forces worked to restore order following violence that claimed lives in several places, mobile data connections were suspended for a second day and disruptions to Twitter, YouTube, and Facebook occurred.

According to surveys, Khan is the most well-liked politician in Pakistan, and his detention occurred as the nation struggles with a balance of payments crisis and a prolonged delay in the IMF programme. Pakistan's foreign exchange reserves are so low that they hardly even cover a month's worth of imports.

“Political unrest has further weakened the little bit of hope in a stronger rupee that we had. IMF will most likely be delayed further,” said Komal Mansoor, the head of research at Tresmark.

In the absence of new funding support, Pakistan may default on its foreign obligations, according to international rating agencies and think tanks.

Until the end of this fiscal year in June, Moody’s Investors Service expects Pakistan to be able to make its external payments. However, Pakistan’s choices for funding after that point are quite uncertain. Given its extremely low reserves, Pakistan might default without an IMF programme.

According to Dr Khaqan Najeeb, a former adviser to the Ministry of Finance, the market is now more concerned about whether the IMF programme would resume due to the recent spike in political turmoil.

“The heightened political turmoil has come at a time when the economy has been in the doldrums for months largely due to an acute balance of payment crisis, with falling State Bank of Pakistan reserves barely covering a month of highly controlled imports,” he added.

“What is important to consider is the fact that even if Pakistan is able to finance the $3.7 billion due by June 30th, Pakistan’s financing options beyond June are highly uncertain. It would be hard to arrange dollar financing without the umbrella of the IMF programme,” Najeeb said.

“However negotiating a new programme is an uphill task till there is certainty of the political cycle in the country.”

When the government should be concentrating only on managing the economy, it is instead equally interested in managing politics despite the critical economic juncture. The hefty debt repayments due in June will be repaid or rolled over, according to a statement released by the Finance Ministry on Tuesday.

By reducing imports, the government has discovered a magic formulafor posting current account surpluses, while ignoring the weakening economy and the pains of industries. This appears to be the only plan available in the absence of an IMF programme, rollover debt repayments, match imports with exports, and remittances, given that the current government has only three months left in office, according to analysts.

According to Tradeweb statistics, the 2024 issue of Pakistan’s international bonds dipped 0.4 cents on the dollar. For shorter-dated maturities, the bonds trade at extremely distressed levels between 49 cents on the dollar, while longer-dated ones change hands at about 33 cents.