Upper house

Rupee set to gain on IMF loan stimulus

KARACHI: The rupee is expected to rally in the week on growing investor optimism over Pakistan’s economic prospects after the government met all conditions for the resumption of the International Monetary Fund (IMF) lending program, reports said. said traders.

Pakistan’s upper house of parliament has passed a law that would give the central bank more autonomy over prices and monetary policy. The legislation (passing the State Bank of Pakistan Amendment Bill 2021 by the Senate) was one of the key conditions for $6 billion in IMF financing.

“The IMF Executive Board is expected to approve the release of the $1 billion tranche under the Extended Financing Facility to Pakistan, which will help alleviate balance of payments difficulties amid rapidly depleting funds. foreign exchange reserves. It could also help unlock funding from other international financial institutions,” said a forex trader.

“Over the next couple of weeks, the rupiah may recover, supported by IMF approval and expected inflows of $1 billion from the issuance of dollar-denominated sukuk,” he added. The IMF board is due to meet on Feb. 2 (Wednesday).

The local unit oscillated during the outgoing week. It closed at 176.77 to the dollar on Friday after falling from 176.98 on Wednesday.

Some traders are seeing cautious optimism in the market amid fears of mounting inflationary pressures and heightened current account fragility amid another surge in global commodity prices.

Markets appear to be watching the path of inflation very closely and with Brent trading around multi-year highs and high volatility across all other commodities, it would be difficult to stop runaway inflation. It would also lead to an increase in the current account deficit, as oil is Pakistan’s main import component.

“Investors should take limited positions to see how things develop with the economy. Apart from IMF inflows, how the government manages to secure funding from other global creditors to finance the expected current account deficit of $15 billion” , said another trader.

“The IMF approval along with the real effective exchange rate below the 100 level should benefit the local unit in the coming days, but we believe the rupee will remain in a range for an extended period.”

Analysts see the possibility of another IMF program on the country’s growing external debt service demands.

“After Argentina, Pakistan will be next. Be prepared for a bigger IMF deal for Pakistan in 2023 or 2024 given Pakistan’s huge debt, high debt service and low foreign exchange reserves said Mohammed Sohail, CEO of Topline Securities, in his official Twitter account.

Former finance ministry adviser Dr. Khaqan Hassan Najeeb said that with financing needs above $28 billion for fiscal year 2022 and continuing, the IMF is useful until the fundamentals of the BOP (balance of payments) are fixed. The country’s foreign exchange reserves fell 3.7% to $22.48 billion as of January 21.