Pakistani currency suddenly slumped 1.15% (or Rs2.38) on a day-to-day basis to a one-week low at Rs206.94 against the US dollar in the inter-bank market on Tuesday in the wake of the emergence of conflicting reports about a likely delay in the revival of IMF loan programme.
The local currency had maintained an uptrend for over one week, as it closed at a three-week high at Rs204.56 against the greenback on Monday, according to the central bank data.
Surprisingly, the rupee took a U-turn towards the downside following Punjab Chief Minister Hamza Shehbaz’s announcement of free electricity for the consumers of up to 100 units a month ahead of the CM elections on July 22.
The supply of free electricity is against the conditions of the IMF loan programme. The announcement to provide subsidised electricity to nine million households may cause further delay in the resumption of the IMF programme.
Finance Minister Miftah Ismail has already dismissed other rumours and said the reports about the delay in the IMF programme are untrue. “The IMF programme is on track.”
KASB Securities Head of Research Yousuf Rahman said speculation about the delay in the IMF programme was a reason behind the latest drop in the rupee value.
More importantly, “the jump in demand for dollar to pay for elevated imports is the major cause behind the latest depreciation of the rupee,” he said.
Pakistan’s import bill jumped to the high level of $7.7 billion in June 2022, suggesting that the demand for the dollar remained high. “The domestic currency will remain under pressure till the demand for dollar stands high.”
Historical trends suggest the import bill usually remains high during June, which is the last month of every fiscal year.
Imports are expected to come down in the following months, which will help the rupee to return to the recovery path. “The rupee will recover and stand below Rs200 against the US dollar after the IMF gives its final approval for the resumption of loan programme,” he anticipated.
The IMF will release its next tranche of $2 billion after the completion of the combined seventh and eighth reviews of the economy. This will help the rupee to regain ground against the greenback. “State Bank of Pakistan (SBP) has estimated … IMF programme may unlock foreign financing worth $15 billion,” he said, adding the central bank estimated the inflows in the last analysts’ briefing held on May 23.
The foreign currency inflows on account of the Roshan Digital Account (RDA) have also helped stabilise foreign exchange reserves and supported the rupee against the US dollar. Overseas Pakistanis have sent the funds through RDA which are in addition to their monthly dispatches under the head of workers’ remittances.
“Roshan Digital Account inflows increased to a 3-month high of $250 million in June, up 32% compared to May,” State Bank of Pakistan (SBP) reported on its official Twitter handle on Tuesday.
“Total (gross) inflows have now crossed $4.6 billion. Both SBP and the government remained committed to serving the needs of our Overseas Pakistanis, and we thank them for their continuous trust.”
The net RDA inflows, however, stood at $3.8 billion, the central bank said.
SBP disclosed for the first time on Tuesday that “around $800 million have been repatriated by RDA holders in 22 months since the start of RDA in September 2020 to meet their personal needs in their countries of residence. As a result, net inflows amounted to over $3.8 billion.”
Rahman said RDA inflows may remain strong at around the current level.
Published in The Express Tribune, July 6th, 2022.