The Pakistani rupee has dived to a historic low against the United States dollar after an exchange cap was lifted as the cash-strapped country seeks to unlock a vital bailout from the IMF.
The Washington-based lender has yet to approve the release of the crucial instalment of $1.1bn, originally due to be disbursed in November last year as part of a $6bn bailout secured in 2019.
Talks with the IMF about reviving the bailout stalled in recent months, with the institution demanding more progress on fiscal consolidation and economic reforms.
The rupee closed at 230 to the US dollar on Wednesday. It slipped further, trading at 255 for $1 within hours of the market reopening on Thursday. Hours later, Pakistan’s Central Bank confirmed the currency had plummeted by 9.6 percent against the US dollar after the removal of price caps imposed by the government but which the IMF opposed.
Financial expert Malik Bostan told The Associated Press news agency the value of the rupee dropped mainly due to the delay in the revival of the IMF’s bailout talks, amid depleting foreign exchange reserves, but expected it to stabilize as the negotiations pick up again.
On Thursday, the IMF’s resident representative said an IMF vision will visit Pakistan later this month to discuss the stalled ninth review of the country’s current funding programs.
“At the request of the authorities, an in-person Fund’s mission is scheduled to visit Islamabad, January 31st – February 9th” to continue discussions,” Esther Perez Ruiz was quoted as saying by the Reuters news agency.
A successful visit is critical for Pakistan, which is facing an increasingly acute balance of payments crisis and is desperate to secure external financing, with less than three weeks’ worth of import cover in its foreign exchange reserves.
Multilateral and bilateral financing pledges for Pakistan’s effort to rebuild after devastating floods last year are also tied to the country getting the green light from the IMF.
This week, Prime Minister Shahbaz Sharif said his government was ready to adhere to the fund’s “tough conditions” to revive the $6bn bailout package, which was increased by another billion in 2020.
Sharif has been struggling to put the economy on track since taking office last year, blaming former Prime Minister Imran Khan and his government for the economic malaise. Khan was removed from office in April 2022 through a parliamentary vote of confidence, and has since been campaigning for early elections.
Thousands of shipping containers packed with raw materials for industry, foodstuffs, and medical equipment are being held up at Karachi port because banks have refused to guarantee importers’ dollar transactions.Pakistan also suffered from a nationwide electricity outage earlier this week, linked to a cost-cutting measure, estimated to have cost the textile industry alone $70m.