Rupee expected to continue appreciation next week

KARACHI: The appreciation in the value of the rupee is likely to continue in the coming week, as the country is expected to reach a staff-level agreement with the International Monetary Fund (IMF) for the disbursement of around $1.2 billion tranche, dealers said.

The local unit appreciated throughout the outgoing week, as Pakistan inched closer to secure the much-needed IMF deal to provide stability to the country’s deteriorating economy.

The rupee gained Rs6.63, or 2.4 per cent, to reach Rs262.81 on Friday against the closing of Rs269.44 on Monday, February 13.

Experts said the market gained confidence after the government, on
February 15, tabled Rs170 billion supplementary finance bill to help the cash-strapped country secure funds from the IMF to stave off a potential external default.

The measures included raising the general sales tax by a percentage point to 18 per cent; following the fuel and gas price hike earlier this week as part of the efforts to meet the IMF conditions for the release of a $1.2 billion loan tranche, originally due in November 2022.

On the flip side, Fitch Ratings downgraded Pakistan’s long-term foreign currency issuer default rating (IDR) to ‘CCC-’ from ‘CCC+’ on February 14, due to an alarming decline in the foreign exchange reserves and the tough IMF conditions.

The newly-assigned rating of ‘CCC-’ suggests that the country is managing a high risk of default on its foreign debt. The latest downgrading reflects further deterioration in the country’s external liquidity and funding conditions, along with its low foreign exchange reserves.

However, the global rating agency expected that the IMF will resume its loan programme upon the completion of the ongoing talks with the country’s officials.

Pakistan’s total liquid foreign exchange reserves increased $162 million to reach $8.7 billion during the week ended February 10, compared with $8.54 billion on February 3.

The forex reserves of the State Bank of Pakistan (SBP) showed an increase of $276 million to $3.2 billion during the week under review, after declining $1.68 billion during the last three weeks.

The net foreign exchange reserves held by the commercial banks declined to $5.5 billion during the week under review against $5.623 billion a week earlier.

Pakistan’s import bill fell 22.53 per cent to $36 billion during July-January of the fiscal year 2022/23, compared with $46.60 billion in the corresponding period of the last fiscal year.

However, the exports also recorded a decline of 7.16 per cent to $16.47 billion during the period under review, compared with $17.74 billion in the same period of the last fiscal year.

Similarly, the inflows of workers’ remittances also declined 11 per cent during the first half of the fiscal year 2022/23.

The State Bank of Pakistan received $14.05 billion during the first half of the current fiscal year, compared
with an inflow of $15.81 billion in the corresponding period of the last fiscal year.