In the current fiscal year, the IMF will disburse about $2.2 billion and the government will return about $3.1 billion under the 2008 programme. PHOTO: FILE
Amid belated and desperate attempts by the State Bank of Pakistan to stop the rupee’s slide against the US dollar, Pakistan on Friday returned $146.6 million to the International Monetary Fund as part of a repayment programme for a $7.8 billion loan package.
It was the 20th tranche to repay the IMF loan that was taken in November 2008 to avert a balance of payments crisis. With the fresh repayment, the country has paid back over $720 million in the current fiscal year. Overall, it has returned over $5.2 billion to the IMF.
Now, net flows from the IMF have turned negative unlike the expectations of the government that had hoped for receiving at least an equal amount from the lender, if not more, under a new $6.7 billion Extended Fund Facility (EFF).
The government received the first tranche of $547 million in early September under the three-year EFF. The next tranche depends on a successful completion of the first review of the programme, by the end of November or early December.
In the current fiscal year, the IMF will disburse about $2.2 billion and the government will return about $3.1 billion under the 2008 programme.
However, as widely expected, the repayments are taking a heavy toll on the foreign currency reserves, held by the central bank. Gross foreign currency reserves held by the central bank have dropped to $4.928 billion.
The SBP has not released the reserves position after making fresh repayment, but these are expected to have come down to about $4.7 billion. Pakistan will repay the next tranche to the IMF early next month.
According to reports, the SBP has once again used its reserves to stem the rupee’s decline against the greenback, which will further deplete the reserves. It is the first such intervention in the market after entering the new IMF programme that bars the central bank from stepping in to spur the rupee.
The SBP once again used the window of forward contracts and asked commercial banks to pump dollars into the spot market. The central bank would return the amount to the banks afterwards, but the exact amount was not yet known. The SBP’s response in this regard was still awaited.
In the face of SBP intervention, the rupee appreciated to 105.126 against a US dollar in the interbank market whereas in the open market the exchange rate fluctuated from 108 to 109.
Before the intervention, the rupee had slumped to a record 111 against the dollar in the open market and in the interbank market it stood around 108.
In the last fiscal year alone, the SBP used $3.5 billion to shield the local currency, which appeared to be a mismanagement of the foreign currency reserves. The foreign exchange used to defend the rupee was about three-fourth of the reserves depleted in the last financial year.
Owing to heavy reliance on borrowing to build the reserves and their consumption to defend the rupee, the IMF has asked the SBP to scale back such activities. It has said that instead of throwing dollars there should be net purchases of the greenback to build the reserves.
Similarly, the IMF has also placed a ceiling on the SBP’s forward position and capped it at June-end level of $2.255 billion. As part of the performance criterion, the cap will remain the same for the end of September.
However, in the next three months, the SBP has to return $250 million to commercial banks that it borrowed under forward contracts.
The net forward position should be reduced to $1.755 billion by the end of this fiscal year, according to the IMF.
The reluctance of exporters to bring home their export proceeds within the stipulated time, in the hope of exchanging dollars at higher rates, has also increased pressure on the rupee, according to market analysts.
Published in The Express Tribune, September 28th, 2013.
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COMMENTS (11)
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@Kh: When you look around other countries who were IMFed you can see the pattern.
@Muneeb: to some great extent Mr Sayeed is correct...was the situation that bad during the last govt of Gen M...? you will certainly not agree, but the facts are available on the govt website...compare those data with the last 5 years and the present govt 100 days data....or simply go to the street and ask any general public...whether they are happy during democratic era or dictators era...? you will be shocked ! not that dictatorship is better, but it has been proved beyond doubt that in the garb of democracy...what the poor people got in return.?...what we are trying to do is only copying western democracy, forgetting that we have dynastic political parties, beradari system, tribal and feudal system where people are dependent on them for their own economic benefit, the poor people are deliberately kept uneducated although these same breed of politicians have made constitution wherein free education is enshrined, the same breed of politicians do not want people to become politically conscious of their rights as per constitution so they do not want to have local bodies election, although these lawmakers passed law to make LB system as per constitution, because, otherwise, the govt will have to pass the amount of development funds to the Union council or Zila council members instead of passing them to their own elected MNAs / MPAs, these political parties do not have internal elections, again not following constitution, not prepared to bring in electoral reforms...why do they have such constitutional articles and clauses which they themselves are not prepared to follow ? why make such promises during their election meetings which they cannot be fulfilled ? and the list is long....a depreciation of 2.5% in our pak currency, we loose Rs 7 billion a day and presently, the depreciation is hovering at 7%, the consequential effect is mind boggling...yet people are not prepared to accept facts and reality, which is the main reason for the mess we are in TODAY....we are our own enemy.
@Saeed, read some contemporary history, since your mind seems to be incapable of retaining memories from recent past. See where this all started from and who was in power in the year 2007. Then comment something ignorant like, then came democracy.......!!!
Don't worry Pakistan your economics situation is not better than mine. We are living against all odd.
Pakistanis getting what they deserve for saying goodbye to Musharraf: welcome to the IMF.
Nothing but creative accounting to hide the poor state of economy
@Ashkenazi: And who told this to you or its just what u heard on tv.
The economy is tail spin. There is no one in control to give direction. I feel the time has come that one gets a mature Finance Minister and Sec Finance. What happened to getting Etisalat money back in 15 days?. Rs/$ free fall was engineered and panic. Everyone can guess that the big boys made a killing. Why did SBP increase the minimum interest rate yesterday and then causing a crash in Stock Market.
Unless confidence is given to Business, economy will further deteriorate.
It is with GoP and SBP the rupee is sliding, we got 6 billion dollar loan after agreeing to this devaluation.
In order to save our country from being called a failed state, our ultra rich leaders, the elites etc' has to bring their ill gotten money from abroad, otherwise the situation is beyond control.....may Allah swt save us......
There was a time when Pakistan said good bye to IMF and then came democracy.