The rupee continued getting weaker on Friday and closed at 223.17 against the US dollar in interbank trading as the uncertainty surrounding the ninth review of Pakistan’s economy by the International Monetary Fund (IMF) under its loan programme gripped the market.
Hence, the Pakistani rupee dipped to a six-week low as importers were unsure whether the flow of the greenback would improve in the near future.
It is said that the postponement of Saudi Crown Prince Mohammed bin Salman’s visit is contributing to the worsening situation as he was expected to announce an investment of $10 billion in Pakistan.
Meanwhile, the financial experts and markets are of the opinion that the country’s default risk has increased amid thinning foreign exchange reserves thinning and political noise growing louder and louder.
Apart from the currency’s fall, the yield on Pakistan’s global Sukuk, maturing next month, rose by 568 basis points to 98.96%, reinforcing a perception that the country might default on the Sukuk worth $1 billion.
On Thursday, the rupee had closed at 222.67 and its further lost its value by 0.22 percent with the market sentiment overwhelmed by high default risks and low foreign exchange reserves, making it the sixth consecutive session where the rupee has lost its value.
In this scenario, a holdup in the ninth review of the IMF loan programme remained a cause of concern for investors as they are waiting for the announcement of a date for this purpose.
Although a date has not yet been set, the IMF staff mission is anticipated in Islamabad by end of the current month, as the Fund requires Pakistan to take mandatory actions.
The government has urged the IMF to grant some exceptions because of flood losses, but the Fund is pushing Pakistan to maintain the agreed tax-to-GDP ratio of at least 11 percent.
During the business week closing Friday, the local currency remained under pressure and dropped by 0.7 percent week-on-week basis.
According to experts, ambiguity with respect to the IMF’s ninth review, gap between interbank and open market rate and roll over of commercial borrowing are reasons behind the current state of affairs.
On the other hand, remittances sent home by overseas Pakistanis fell over 9 percent month-on-month to $2.2 billion in October owing to a widening exchange rate differential in the open and interbank market and a global slowdown.