Karachi, September 1, 2024 – The Pakistani rupee is expected to remain stable in the coming week, despite delays in the final approval of a new $7 billion loan program from the International Monetary Fund (IMF).
Throughout the past week, the rupee traded within a narrow range in the interbank market. It started at 278.41 per US dollar on Monday and dipped slightly to 278.64 on Thursday. By Friday, the rupee had recovered some of its earlier losses, closing at 278.53 against the dollar.
Foreign exchange dealers predict that the rupee will continue to trade within its current range next week. This expectation is supported by a rise in foreign exchange reserves and a boost in investor confidence following an upgrade in Pakistan’s credit rating by Moody’s.
As of August 23, Pakistan’s central bank reported an increase in foreign exchange reserves, which rose by $112 million to reach $9.403 billion.
Pakistan is currently awaiting the final approval from the IMF’s executive board for a new $7 billion loan program. This approval has been delayed due to the pending confirmation of debt rollovers and the need to bridge the country’s external financing gap. In addition to the IMF loan, Pakistan is also seeking approximately $4 billion in loans from Middle Eastern banks, with a rollover of Saudi Arabia’s previous debt still pending. Ongoing negotiations for the continuation of Saudi Arabia’s oil financing facility could also play a crucial role in stabilizing the country’s finances. Reports suggest that Saudi Arabia has proposed an offer related to the Reko Diq mining project, which, if accepted by Pakistan, could ease the debt rollover process and secure additional financing.
On Wednesday, Moody’s upgraded Pakistan’s credit rating to Caa2, citing improved macroeconomic conditions and better government liquidity and external positions. These improvements have been attributed to a 37-month Extended Fund Facility (EFF) agreement with the IMF, which was reached at a staff level on July 12, 2024.
“There is now greater certainty on Pakistan’s sources of external financing, following the sovereign’s staff-level agreement with the IMF for the EFF of $7 billion,” Moody’s stated. “We expect the IMF Board to approve the EFF in the next few weeks.”
Despite these positive developments, Pakistan’s foreign exchange reserves, although nearly doubled since June 2023, remain below the level required to fully meet its external financing needs. The country still relies on timely financing from its official partners to meet its external debt obligations.
Market analysts suggest that the finalization of the IMF program will have a significantly positive impact on market sentiment. However, until concrete news about the IMF deal emerges, the rupee is expected to remain range-bound. Analysts also anticipate cautious market behavior due to expectations of lower inflation figures and a potential interest rate cut next month.
According to a note released by Tresmark last week, “The absence of forward selling will put the rupee under pressure, but the market does not expect much volatility in the currency next week. With the IMF deal still precarious, political managers are likely to maintain a tight grip on the rupee to avoid further instability.”