Saving the IMF deal

IMF wants government to forego currency controls and let rupee attain its real market value against the dollar

Much depends on the continuation of the bailout deal with the IMF — well, for Pakistan to avoid a default on foreign payments and stop a free fall of the economy. If the $7 billion deal — of which $3.9 billion have already been obtained, and another $1 billion is at stake under the ongoing ninth review — is not put back on track, the government is highly unlikely to secure $4.3 billion in additional assistance from Saudi Arabia and a $3 billion rollover from the UAE to avert a serious balance-of-payments crisis.

Meanwhile, the IMF — among other demands like raising the oil and energy prices — wants the government to forego currency controls and let the rupee attain its real market value against the dollar. And this is what throws the government between the devil and the deep. If the government lets the rupee float freely, it will weaken further and add to the imported inflation in the country — something that the ruling coalition would want to avoid amid the charged political environment and the already skyrocketing rate of inflation. Maintaining currency controls, on the other hand, may bring the IMF agreement to an abrupt halt — just like all the previous IMF deals, but one.

The currency controls though are not less damaging either. They have now created a black market where a dollar is fetching Rs25 to Rs30 as compared to the interbank rate that stood at Rs225.64 to a dollar on Friday. This difference in the exchange rate is also discouraging foreign inflows through banking channels. As a result, remittances from abroad have slipped by 9% to $12 billion during the July-November period of the ongoing fiscal year — a fall of $1.2 billion in just five months, according to the SBP.

With the SBP forex reserves having fallen to $6 billion — barely enough to support one month’s imports –it’s a race against time for the government to meet the IMF conditions and save the deal with it — to consequently fill the coffers with the IMF dollars as well as inflows from the friendly countries. All eyes thus are on Ishaq Dar.

 

Published in The Express Tribune, December 26^th, 2022.

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