Ishaq Dar briefs IMF review mission head on govt’s economic and fiscal reforms n Nathan Porter hopes govt will meet IMF requirment of completion ot 9th review Fitch solutions predicts Pak rupees likely to fall further.
ISLAMABAD - Talks between Pakistan and International Monetary Fund (IMF) started on Tuesday as Islamabad is desperately looking for revival of the bail out package to build its foreign exchange reserves. The talks would be held in two phases, technical discussion between the two sides stated yesterday), which would continue till Friday. The second phase of policy negotiations would continue till February 9 to finalise a memorandum of economic and financial policies (MEFP). Federal Minister for Finance and Revenue Senator Mohammad Ishaq Dar held a meeting with IMF review mission led by IMF Mission Chief Mr. Nathan Porter at the Finance Division here. The meeting discussed and reviewed the economic and fiscal policies and reforms agenda to accomplish the 9th review under the Extended Fund Facility. Ishaq Dar briefed the mission on the fiscal and economic reforms and measures being taken by the government in different sectors including bridging the fiscal gap, exchange rate stability and in energy sector for the betterment of the economy. He apprised that reforms are being introduced in power sector and a high level committee has been formed for devising modalities to offset the menace of circular debt in gas sector.
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The Finance Minister also extended gratitude to the Managing Director of IMF on continuation of talks and shared that as Finance Minister he had successfully completed the IMF programme in the past and that the government was committed to complete the present programme. He further extended all his support to the Mission and committed to work together for reaching an agreement to complete the 9th review under Extended Fund Facility (EFF). Mr. Nathan Porter, the IMF Mission Chief, expressed his confidence that the government will meet the IMF requirements for the completion of the 9th review and hoped that Pakistan would continue towards its progress on the reforms in various sectors and complete the IMF Programme within the time effectively. He further added that IMF and Pakistan will be working together on fiscal reforms. Pakistan is currently facing severe economic challenges as inflation is on higher side, reserves are depleting and currency is massively depreciating amid foreign inflows had dried. The currency has cumulatively slumped by 14.36% or Rs38.74 in the three days, compared to Wednesday’s close of Rs230.89 to a dollar. However, the rupee started showing signs of recovery on Tuesday as it gained nearly Rs2 against the US dollar to close at Rs267.89 after the talks with the IMF started.
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The country’s foreign exchange reserves have fallen to an alarming level. “During the week ended on 20-Jan-2023, SBP’s reserves decreased by US$923 million to US$3,678.4 million due to external debt repayments,” said State Bank of Pakistan. The total liquid foreign reserves held by the country stood at US$9.453 billion as of 20-Jan-2023. Foreign reserves held by the State Bank of Pakistan are $3.678 billion and net foreign reserves held by commercial banks are $5.774 billion. The reserves are declining due to the repayment against previous loans. The revival of IMF programme would help in receiving loan tranche from the Fund as well as it would pave way for getting loans from friendly countries. Friendly countries had been holding back their promised additional support — about $2 billion from Saudi Arabia, $1 billion from the UAE and about $2 billion from China because of an impasse between the finance ministry and the IMF.
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Ms. Esther Perez Ruiz, IMF resident representative, Minister of State for Finance and Revenue Dr. Aisha Ghous Pasha, SAPM on Finance Tariq Bajwa, SAPM on Revenue Tariq Mehmood Pasha, Governor State Bank of Pakistan Jamil Ahmed, Secretary Finance, Chairman FBR, members of IMF delegation and senior officers from Finance Division attended the meeting. Meanwhile, Fitch Solutions has predicted that Pakistani rupee is expected to weaken further, particularly with the country’s balance of payments positions likely to remain weak for several more months, The Fitch has noted that Pakistan rupee was devalued on January 26, dropping significantly by 8.3% against the US dollar on the day itself. The currency has weakened by a further 5.0% since then, to all-time highs of around Rs260.00/USD as of writing on January 30. The rupee’s devaluation was triggered by the decision among local foreign exchange companies to remove a self-imposed cap on the exchange rate on January 25. The State Bank of Pakistan (SBP) initially intervened, but the significant depreciation in the rupee is a clear sign that the authorities have effectively loosened their grip on the currency.
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Fitch Solutions forecast for the rupee to reach Rs248.00/USD by year-end is therefore now looking out of date. “We believe that the rupee’s weakness still has further to run, particularly with Pakistan’s balance of payments position likely to remain weak for several more months”. That said, there remains a considerable amount of uncertainty at this juncture. For example, it is difficult to gauge the extent to which the latest devaluation has caused investor sentiment to further sour. “We will therefore firm up our rupee forecasts over the coming weeks, once the dust settles,” it added. A continued weakening in the rupee will have broader economic implications too. In the near term, it could exacerbate imported inflationary pressure, and may eventually result in steeper policy rate hikes from the SBP.