IMF bailout deal

The fast-eroding value of the rupee is sure to have a direct bearing on household budgets

Editorial April 01, 2019

Finance Minister Asad Umar hopes to finalise a bailout agreement with the IMF towards the end of April, and the signs of ‘success’ are already evident.

Electricity and gas tariffs have been increased, the key interest rate has been raised and the rupee has started depreciating – with the dollar having gained Rs2.25, or 1.6%, in the past three weeks in inter-bank dealings, according to the State Bank of Pakistan.

This continual fall in the rupee value lends credence to the buzz in the market that the local currency would go down to 145 to a dollar by the end of April and to 150 by December – in line with one of the IMF demands for bailing Pakistan out of the prevailing financial crunch.

The fast-eroding value of the rupee is sure to have a direct bearing on household budgets. With Pakistan being a country highly dependent on imports, the weakening rupee is likely to create inflationary pressure in the economy by making imports costlier. The industries using imported raw material will witness a surge in their cost of production, and the increased cost will be passed on to the consumers in the form of higher prices.

A weakening rupee will also increase the volume of foreign debts and loans, which means a higher allocation in the budget for debt-servicing. To add to that, a costlier dollar will serve to jack up the prices of petroleum products, which will increase the general cost of transportation, and thereby the cost of almost all consumer items. It is thus the poor consumer who will find himself caught at the receiving end, as always.

Umar, the Finance Minister of a cash-strapped country, is understood to have only tried to reduce the gap with the position that the IMF had taken, i.e. only to lessen the sufferings of the common man from an approaching tsunami of inflation in the wake of a bailout package from the Fund.

Published in The Express Tribune, April 1st, 2019.

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