IMF Talks to Stabilize Rupee Against Dollar Next Week

IMF Talks to Stabilize Rupee Against Dollar Next Week

Karachi, June 30, 2024 – The Pakistani rupee is expected to remain stable in the upcoming week starting July 1, buoyed by positive sentiment following the passage of a tax-heavy budget by Pakistan’s parliament ahead of crucial discussions with the International Monetary Fund (IMF) for a new loan, currency dealers reported.

During the last week of the fiscal year 2024, the rupee appreciated by 28 paisas against the US dollar in the interbank market. Despite some pressure due to increased demand for dollars from importers and businesses, the local currency ended the week on a stronger note, closing at 278.34 against the dollar on Friday, up from 278.62 earlier in the week.

Dealers predict that the rupee will maintain its current level in the coming week, driven by routine dollar demand from importers and optimism surrounding the potential IMF agreement. The anticipated bailout, expected in July, is projected to range between $6-8 billion, crucial for preventing Pakistan from defaulting on its debt.

On Friday, the government passed the Finance Bill for the fiscal year 2024-25, paving the way for further negotiations with the IMF. This development, along with some favorable economic indicators, has bolstered market sentiment. The State Bank of Pakistan reported that approximately $918 million in dividends were repatriated in May 2024, thanks to a comfortable foreign exchange reserves position supported by current account surpluses and high remittances.

For the fiscal year 2024, the rupee appreciated by 2.8% against the US dollar, marking the first annual appreciation in three years. This contrasts sharply with the previous fiscal year, during which the rupee depreciated by 28%. Pakistan’s economic stability was bolstered by a $3 billion IMF bailout secured last summer, which helped avert a sovereign default. The IMF’s standby arrangement concluded in April this year, having facilitated timely funding from both bilateral and multilateral partners.

The reduction in the current account deficit, improved foreign inflows, and a narrowing gap between open and interbank rates were key factors in the rupee’s strengthening during FY24. Additionally, administrative measures to curb dollar smuggling to Afghanistan and to stop grey market dollar trading played a significant role.

The central bank’s foreign exchange reserves have seen a substantial increase, rising from $4 billion at the end of June 2023 to $8.9 billion as of June 21, 2024. These improvements reflect a combination of reduced imports due to subdued domestic demand and exchange rate reforms that have redirected remittances back into the official banking system.

Analysts are cautiously optimistic about the rupee’s stability in the short to medium term. However, they project a potential depreciation of 5-6% in the next fiscal year, FY25, as various economic challenges persist.

In summary, while the rupee has shown resilience and a positive trajectory due to fiscal measures and IMF support, ongoing economic reforms and stable foreign inflows will be crucial in maintaining its stability against the dollar in the near future.