Rupee hits 4-week high on IMF loan hopes

KARACHI: The rupee on Thursday strengthened to its highest level in about four weeks, driven by growing optimism on the revival of a suspended IMF bailout package later this month as the government has successfully completed the requirements for the release of $1.17 billion in funds.

The rupee closed at 218.88 per dollar, the strongest since July 18, and higher than Wednesday’s close of 221.91. The local unit rose 3 rupees or 1.38 percent for the day in the interbank market.

The rupee has appreciated by 9.30 percent against the dollar in the last eight trading sessions.

In the open market, the local unit gained 2 rupees to end at 216/dollar.

Reports that Pakistan will receive a letter of intent from the Washington-based lender before this weekend sparked hopes of its securing the IMF funding soon, which helped rupee make fresh gains, given the perception the IMF’s endorsement is key to unlocking other foreign inflows and rolling over bilateral and multilateral loans.

The comforting statements from the government and the State Bank of Pakistan also lifted the rupee sentiment.

Finance Minister Miftah Ismail in a recent interview with CNBC said Pakistan had successfully averted a Sri Lanka-like situation.

Acting Governor State Bank of Pakistan Dr Murtaza Syed is confident that the country would soon bridge its external financing gap of $4 billion with the help of friendly countries under the IMF conditions amid dwindling foreign reserves.

Analysts said the progress on the IMF programme front diluted concerns over the prospects of the country’s default on its foreign debt payments. Staying in the IMF programme is necessary to keep the economy afloat.

The IMF board is expected to review the staff-level agreement with Pakistan, reached last month, at its meeting due on August 24. The board is likely to approve the release of the next two loan tranches. It will also consider increasing the size of the loan facility to $7 billion, up from the $6 billion agreed in 2019.

“The pressure on the rupee is easing on expectations that Pakistan will reach an agreement with the IMF as the government has completed all prerequisites about energy tariff adjustments, increase in taxes, and petroleum levy for the disbursement of the loan tranche,” said Tahir Abbas, the head of research at Arif Habib Limited.

“Imports pressure is also easing as a result of the decline in global oil and other commodity prices and the administrative measures taken to curb imports,” he added.

The outlook for the current account deficit has been improving due to the tightening of fiscal and monetary policies, falling global commodity prices, and the market-driven exchange rate.

Pakistan's current account deficit is expected to narrow to $8.7 billion or 2.3 percent of gross domestic product this fiscal year from $17.4 billion or 4.5 percent of GDP a year ago, according to analysts.

The improvement in the current account deficit in FY2023 will be led by import compression as imports are expected to clock in at $62 billion in FY2023, compared with $72 billion in the previous year.

Imports dropped 13 percent year-on-year to $4.9 billion in July.

The SBP implemented some administrative procedures, carried out an on-site check of banks and exchange companies, and fined those responsible for wrongdoing in an effort to curb volatility in the rupee.

Slowing imports and the revival of the IMF programme would have positive implications for the rupee, paving the way for further appreciation in the currency in the near term.