KARACHI: Currency experts fear that the new IMF agreement may lead to a significant depreciation of the local currency, as the global lender considers the current exchange rate as a managed exchange rate, which could prompt a downward adjustment.
They said the finance minister has announced that a $6 billion loan agreement with the IMF is likely to be finalised next month, adding that this development was highly encouraging for the currency market, as the expected inflows from the IMF would further bolster the exchange rate.
“The recent increase in the State Bank reserves has further strengthened the view that current exchange rate stability could prolong for a significant period,” said Atif Ahmed, a currency dealer in the inter-bank market.
He expressed optimism that the higher inflows of remittances and foreign direct investment in the financial year 2023-24 would continue to increase after the agreement with the IMF, adding that additional inflows from the World Bank, Asian Development Bank, and other sources are expected to rise in FY25, further boosting the country’s financial situation.
However, some experts fear that the country would have to pay around $25bn in debt servicing during the current fiscal year which may destabilise the exchange rate. They said the balance between inflows and outflows, particularly for debt servicing, looks hard to achieve despite a very low current account deficit in FY24.
Some independent economists believe that the new agreement with the IMF will lead to a depreciation of the local currency by 10-15pc in FY25. Currency analysts agree that this is a possibility, given that the State Bank has been maintaining the current exchange rate through measures such as import restrictions, reduced dollar outflows, and influencing banks to operate within the daily trading limits set by the SBP.
The rupee appreciated slightly against the US dollar in the inter-bank market on Friday, with no significant volatility observed in the exchange rate. The US dollar was traded at Rs278.40, compared to Rs278.61 on Thursday, reflecting a 21-paisa appreciation of PKR. The dollar has been fluctuating around the Rs278 mark for the past five months, indicating stability in the exchange rate.
Published in Dawn, July 13th, 2024
