The lender will improve its hypothesis on average dollar and Pakistan will probably ask ICF for breaching the condition of interbank and open market currency differences.
According to highly ranked informants, the IMF now assumes it will cost only slightly above Rs 300 per dollar compared with it projected cost of $ 305.2 in July.
The state department spokesman noted that Pakistan needed to justify why they broke the gap between their bank rate and parallel market at 1.25% in order to receive the next loan tranche from the IMF board. Pakistani officials hope with positive outlooks over gradual improvements in currency exchange, world body might give them wavier and they shall overcome it.
The IMF has already signed a staff level agreement with Pakistan to be approved by the Board later this month which will trigger the release of the 700m USD tranche in June. A question on whether the IMF needs waver was sent to Noor Ahmed, central bank spokesman who however did not give a response to it.
The IMF under $3 billion standby arranged condition that no more than 1.25% differential will exist between inter-bank and the open market exchange rate of Pakistani rupee in order to end the administrative control imposed on it by the government. Nevertheless, the gap grew to 8% and was brought back within this threshold upon an intervention by the government officials.
Recently, SBP Governor Jameel Ahmad stated that over the last several months, the central bank was able to address majority of issues around remittance of revenue income and imports payoffs through increased inflows and higher foreign currency supplies.
According to the sources, however, reserves remain low at $7.4 billion, and the government must enhance them up to $9.1 billion for the period till June’s next year. They added that it was at the recent round of talks where they agreed to the $9.1 billion level. The exchange rate is moving towards the lender’s favor, and they are expecting Pakistan to restore the market-based exchange rate system.
According to sources, IMF assumptions indicated that the average exchange rate may be below Rs300 per dollar by June 2024.
It is also lower than this rate employed in the IMF’s July staff-level report. This is a departure because the lender has reduced further the rupee value than it had assumed in July.
The exchange rate was not stipulated by the IMF, nor did it exist. There is also no agreed rate between Pakistan and the lender. This is how the IMF calculates the current account deficit in the Pakistani economy and shows that it has valued the dollar at an average rate lower than Rs300.
Government had planned its budget for FY 2023-24 according to the exchange rate of Rs. 290/dollar. These are the rates higher than shri 290 that may affect the defense budget, external debt repayment, cost of running Pakistan embassies, and Public Sector Development Programme (PSDP). The sources indicated that the IMF under-revised the payment costs for the external debt in the recent discussions. Moreover, the under-revision amounts to RS 2billion (Rs 200 billions.
It is based on backward projections of current account deficits from which it has been established that rupee will continue depreciating under the IMF programme and after. Assumptions are subject to changes. It may lead to lower depreciation of the rupee with improved inflows in the foreign market, increased exports and remittances. A continuous increase in operational cost due to higher tax rates, transport charges, energy and gases tariff are one of the things which lower the export volumes.
Raja Arslan
