Pak to allow rupee depreciation after IMF talks

Pak to allow rupee depreciation after IMF talks

Pakistan has decided to allow rupee depreciation after crucial talks with the International Monetary Fund (IMF), a media report said today.

The Pakistan government and an IMF delegation yesterday concluded the first round of discussions on the country's economy and the sides are on a two-day break to prepare for the policy-level wrap-up by December 13-14.

A senior official told the Dawn that the State Bank of Pakistan (SBP) would now let the currency exchange rate adjust to market conditions after years of resisting expectations.

The timing of the move was planned to ensure materialisation of USD 2.5 billion worth of receipts from two international bonds launched last month.

This calculated move allowed the currency rate to touch Rs 110 to a dollar yesterday before settling down at around Rs 107 and did not go beyond official estimates.

The two weekend holidays would give breathing space instead of over-steaming the exchange rate.

Sources said the IMF had concerns over the health of Pakistan's external sector, but government authorities had a different opinion.

As the two sides concluded technical talks, the IMF team will prepare a report of its assessment over the weekend and share it with Pakistani officials on Monday for the feedback and discussions.

While the government team, led by Secretary of Finance Shahid Mehmood will review the assessment, the IMF mission to Pakistan, led by Harald Finger, will visit Lahore next week for talks with provincial authorities including Punjab Chief Minister Shahbaz Sharif and independent observers and researchers from the business community and representatives of a private-sector university.

The authorities believe the currency adjustment would help shift foreign currency holdings from commercial banks currently standing at a higher level of around USD 6 billion back to official reserves and help divert remittances to official channels with declining gap among the official, banking and open market rates.

For the first time in many months, the central bank is reported to have noticed exporters offloading their positions.

In the long run, the recent imposition or increase in the import duties and regulatory duties would make unnecessary imports expensive.

An official said that projections for CPEC-related repayments were within the range already discussed by the two sides in connection with debt sustainability analysis as USD 23 billion worth of projects were currently under various stages of implementation, including USD 17 billion in the energy sector by the private sector while about USD 6 billion worth of projects are in the road sector, under the USD 50 billion China-Pakistan Economic Corridor.

While a clean certificate of economic health from the IMF is useful for international financial institutions and investment sentiment, the two sides are reported to have noted that recent bond results were very positive for the fact that this was the first fund raising from international capital market without the IMF programme after many years and it attracted a favourable response and rates despite high twin deficits, showing confidence of international investors and good reflection of fundamentals.

IMF director for Middle East and Central Asian Department (MCD) and Lebanon's former finance minister Jihad Azour will also join the final round of talks next week.

While the Pakistani side will continue to be led by Mehmood, a meeting of the IMF mission could also be arranged with Prime Minister Shahid Khaqan Abbasi who holds the finance portfolio, depending on the gaps in policy positions, a source said.

Pakistan would continue to remain under the IMF's post- programme monitoring (PPM) until about 2023 for borrowing significantly higher than its quota.

The threshold for Pakistan to move out of the PPM is estimated at 1.4 billion special drawing rights (SDRs) of the IMF that now stands at around 4.3 billion SDRs.

Mahmood said the two sides held various rounds of technical discussions over the last week and covered a host of areas including the macroeconomic situation, developments in energy, financial, monetary and social sectors.

He said he shared with the IMF delegation an overview of the economy which was on track and key economic indicators were moving in a positive direction.

He said significant growth had been achieved in revenue generation in the current fiscal year.

Pakistan has achieved fiscal consolidation without compromising on expenditures on development and social protection and the government had set its eyes on achieving 6 per cent GDP growth which was inclusive, pro-poor and sustainable, he said.  

Liked the story?

  • 0

  • 0

  • 0

  • 0

  • 0