IMF Loan Agreement
KARACHI: The Pakistani rupee is anticipated to remain stable in the short to medium term due to positive sentiment following the country’s new $7 billion loan agreement with the International Monetary Fund (IMF). This deal aims to support the struggling economy and manage its growing debts, analysts reported on Saturday.
Throughout the week, the rupee maintained a narrow trading range, benefiting from various positive developments. On Monday, the rupee closed at 278.5 per dollar in the interbank market and slightly improved to 278.4 by Friday.
A significant contributor to the rupee’s stability is the increase in remittances from Pakistani citizens working abroad, which rose to $3.2 billion in June, a 44% increase from the previous year.
Additionally, the central bank’s foreign exchange reserves have been stable at $9.4 billion over the past two weeks. The rupee-dollar parity has stabilized just below 280, after reaching a peak of 307.5 in June 2023.
Pakistan recently achieved a milestone by signing a new 37-month Extended Fund Facility (EFF) with the IMF.
This accomplishment follows the government’s stabilization measures and the successful conclusion of the last $3 billion standby arrangement (SBA) in April. The new deal is pending approval by the IMF Executive Board.
“Reducing inflation, deepening access to financing, and building strong external buffers are key to development and resilience,” stated the IMF. “Monetary policy will continue to be focused on supporting disinflation, which will help protect real incomes, especially for the most vulnerable,” it added.
“To buffer against shocks and build reserves, the State Bank of Pakistan (SBP) will maintain a flexible exchange rate and continue to improve the functioning of the foreign exchange market and the transparency around FX operations,” the IMF noted.
The signing of the new EFF program is viewed as a significant and positive development, enhancing the external sector outlook for the long term.
Arif Habib Limited, in a note, stated, “We anticipate the Pakistani rupee (PKR) to remain stable in the short to mid-term driven by a positive sentiment arising from the new program.”
Tresmark also highlighted the early announcement of the IMF staff-level agreement, indicating that the rupee is poised for further consolidation. “These expectations are supported by expectations of increased hot money, additional multilateral inflows, and higher export proceeds. The equity markets, already near record highs, are likely to receive an additional boost,” Tresmark mentioned in a weekly report.
However, Tresmark noted that the market does not expect substantial gains, with the rupee likely to stay around the 278/$ level. The report also indicated a rise in premiums for 3-6 month tenors.
“While last week saw some forward selling by exporters, the coming week is expected to bring substantial market inflows. Exporters are likely to find the 1-3 month tenor range particularly attractive for selling,” it added.
This stable outlook for the rupee is seen as a critical component in fostering economic resilience and growth, providing a foundation for sustained financial stability amid ongoing economic challenges.
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