Rupee likely to maintain stability

KARACHI: The rupee is likely to maintain stability against the dollar next week, owing to the inflows from China and the expectation of an agreement between the local authorities and the International Monetary Fund (IMF), dealers said.

The local currency ended the week at Rs259.99 against the dollar from the previous day’s closing of Rs260.93 in the interbank foreign exchange market.

The foreign exchange market is witnessing a recovery in the rupee value as Finance Minister Ishaq Dar on February 22 announced that the China Development Bank (CDB) has approved a loan of $700 million for Pakistan.

“The formalities have been completed and the board of CDB has approved the facility of $700 million for Pakistan. This amount is expected to be received this week by the State Bank of Pakistan (SBP), which will shore up its foreign exchange reserves,” according to a Tweet of the finance minister.

The local currency recorded a historic low of Rs276.58 against the dollar on February 3, 2023. However, after touching the lowest level, the local currency recovered 6 per cent, or Rs16.59, against the greenback till the end of the market on February 23, 2023.

The rupee is making recovery due to the International Monetary Fund (IMF) conditions that have been met by the local authorities to obtain the loan tranche of $1.2 billion under the Extended Fund Facility.

The country is expecting to finalise the staff-level agreement by next week, which will make it possible for the release of the tranche.

To meet the IMF conditions, the government announced a phenomenal increase in the prices of electricity, gas and petroleum products. Besides, it also announced a mini-budget to generate additional revenue of Rs170 billion.

The government also allowed the market forces to set the exchange rate, which resulted in a massive deterioration in the rupee value from January 26 to February 3, 2023.

All these measures have been taken to win the confidence of the IMF, which will pave the way for inflows from bilateral and multilateral sources.

Pakistan’s foreign exchange reserves depleted sharply during the last one year and, presently, are at an alarming level. However, in the last two weeks, the official forex reserves have increased slightly, giving some breathing room to the local currency.

The official foreign exchange reserves of the State Bank of Pakistan (SBP) increased $65 million to $3.258 billion by the week ended February 17, 2023, compared with $3.193 billion a week ago.

The current level of the official foreign exchange reserves are only to provide import cover for around two weeks, or 19 days.

The import bill for January 2023 has been recorded at $4.856 billion, as per the Pakistan Bureau of Statistics (PBS). The benchmark foreign exchange reserves of a central bank should be at a level to provide three months of import cover.

The official foreign exchange reserves of the SBP fell sharply to an almost nine-year low. Previously, the official reserves of the SBP were seen at $3.19 billion in February 2014.

The foreign exchange reserves held by the central bank witnessed a record high of $20.146 billion by the week ended August 27, 2021. Since then, these have dropped by $16.888 billion.