‘IMF giving Pakistan tough time’: Dollar soars to historic high of Rs279 after PM’s comments
The rupee on Friday plunged to a historic low against the dollar after Prime Minister Shehbaz Sharif’s said that the International Monetary Fund (IMF) is giving Pakistan “a tough time” — as the lender wants the government to do more on the economic front.
“As we speak, an IMF delegation is in Islamabad [holding parleys on loan programme] and giving a very tough time to the finance minister and his team,” the prime minister said while speaking at the Apex committee meeting in Peshawar, and termed the economic challenges “unimaginable”.
Following the PM’s comments, the local currency depreciated further against the greenback in the interbank market.
During intra-day trade, the rupee was changing hands at 279 against the dollar at 12:48pm, according to the Exchange Companies Association of Pakistan (ECAP), up from Rs271.35 a day earlier.
Analysts have stressed that the country needs the Washington-based lender’s bailout programme to avoid default — a threat that has been looming over Islamabad for some months now.
AA Commodities Director Adnan Agar told Geo.tv that the rupee’s downward spiral is expected till Pakistan secures a staff-level agreement with the Washington-based lender.
The analyst said that the market is reacting to the reports coming on the demands being put forward by the IMF to the government.
Agar warned that if the government fails to secure a staff-level agreement with the Fund, then the rupee will incur further losses.
“If the IMF deal is done timely then it would appreciate but not that much,” said Agar.
In a bid to curb the black market and meet IMF demands, the government and exchange companies removed the dollar cap — imposed to stabilise the dollar’s value.
But that did not have a substantial effect on the local currency as the investors remain wary due to a surge in terrorism and the decline in State Bank of Pakistan-held foreign exchange reserves — which now stand at just $3.08 billion and will provide an import cover of 18.5 days.
ECAP General Secretary Zafar Paracha told Geo.tv that when the dollar cap was removed, it was estimated that the rupee would hit 270 and rebound, however, circumstances changed.
“Our reserves are at their lowest in nine years and terrorism — which isn’t restricted to Peshawar — is also surging,” he said, explaining the reason behind investors’ lack of confidence in the government.
The ECAP general secretary added that the ongoing political turmoil was also adding to the country’s woes as opponents are being arrested every other day and being put behind bars.
Paracha added that the black market gap has been met to a certain extent, but since the government has not opened the letters of credit (LCs) for importers, it will persist.
“The government has asked the importers to arrange dollars on their own […] this is why the black market is still active. If this does not stop, the gap might even increase,” he warned, urging the authorities to move towards import rationalisation.
Paracha added that amid the terror threat and other underlying reasons, the exports have not released their payments yet, resulting in the scarcity of dollars in the market.
A day earlier the IMF rejected the government’s circular debt management plan.
And today it was reported that the Fund has conveyed to the authorities to undertake substantial qualitative and sustainable tax and non-tax revenue measures to fetch additional revenues for filling the projected gap of Rs600 billion in the fiscal framework.
The IMF delegation has asked the government to jack up the Federal Board of Revenue’s (FBR) tax collection target to align it with the projected nominal growth in the current fiscal year mainly with the help of a surge in the CPI-based inflationary pressures.
The Fund seems ready for providing an adjuster on flood expenditures once the fiscal framework is finalised. But it will depend on how much expenditures could be occurred on floods both on the development and non-development side of the budget especially through disbursements of stipends through the Benazir Income Support Programme (BISP).
Gold rally in Pakistan as rupee extends losses
Gold prices climbed on Friday on the back of a sliding rupee, as markets remained focused on the State Bank of Pakistan’s (SBP) interest rate strategy.
According to the data released by All-Pakistan Sarafa Gems and Jewellers Association (APSGJA), the price of gold (24 carats) rose by Rs700 per tola and Rs601 per 10 grams to settle at Rs208,700 and Rs178,927.
Exchange loss likely to deprive masses benefit in petrol price cut
- Govt to announce petrol price today for next fortnight.
- Exchange loss adjustment to rob consumers of petrol price cut.
- Current exchange rate is heavily tilted in favour of the dollar.
KARACHI: Due to a sharp rise in the value of the dollar in the last two weeks, the masses may not get any benefit in the prices of petroleum products, according to a The News report.
The report said that the price of diesel is reflecting an Rs34/litre decrease for the next fortnight. The government is scheduled to review the price of petroleum products today.
The international price of crude oil has come down, which can be translated into a major cut in domestic prices of petroleum products, but only if the government passes on the full impact to the end consumers.
However, sources in the oil sector believe that the government would not pass on the full impact of the reduction in the international prices on exchange losses accumulated over the months, which had put the oil sector in a financial crunch.
The government may be deterred to pass on the impact to end consumers, as the oil sector would be in deep financial trouble if their losses are not adjusted on account of sharp exchange rate fluctuations in the past many months.
Oil sector sources told the publication that the ex-refinery price of diesel is showing Rs34/litre decrease for the next fortnight. However, the exchange losses on diesel go over Rs100/litre, which needs to be adjusted.
Sources said that the government may pass on some relief by cutting the diesel price by Rs15 to 20 per litre for the consumers while adjusting the remaining exchange losses.
Sources, however, felt that this was a ripe time for the government to adjust whatever remained of exchange loss adjustment.
The fall in crude prices gave the government enough fiscal space to accommodate the oil companies, which have been facing financial problems as they were not receiving the full amount of exchange losses.
As far as petrol is concerned, its price is showing Rs13-14 per litre decline on the basis of its ex-refinery price in the next fortnight.
Again the exchange loss adjustment may deprive the consumers of the benefit of price reduction and the government may only pass on Rs4-5 relief while adjusting the remaining amount.
The present exchange rate is heavily tilted in the favour of the dollar. It is a huge hurdle for the government, in terms of reducing the prices of petroleum products in the domestic market.
According to the oil industry estimates, the average exchange rate calculated for the next fortnight is Rs283 to determine the price of the ex-refinery.
Pakistan’s oil sector has repeatedly requested the government in many letters to resolve the exchange losses issue, with few players in the industry pleading to make it more fair and transparent.
Petrol relief package gives IMF ‘excuse’ to delay agreement
- IMF verifying from KSA, UAE on financing before staff-level deal.
- Fund rejects initial petrol subsidy plan.
- Asks Pakistan to provide more details about fuel relief package.
ISLAMABAD: The International Monetary Fund (IMF) has asked the Pakistani authorities to provide more details about the petrol relief package causing more delay in the signing of the staff-level agreement, The News reported Thursday.
The half-baked cross-fuel subsidy proposal by the petroleum ministry has failed to convince the Fund, which has rejected the initial plan arguing that more details are required to verify its sustainability.
The question arises, according to the publication, as to why the PM Office and Ministry of Petroleum announced the plan without taking the IMF review mission into confidence prior to its announcement.
The report stated that the Ministry of Finance has distanced itself from the plan proposed at a time when Pakistan and the lender are inching towards signing the agreement.
The Ministry of Petroleum has now been advised to withdraw the proposal at this stage and iron out the policy details with the Ministry of Finance and then take the IMF into confidence in the next review.
Meanwhile, Minister of State for Finance Dr Aisha Ghaus Pasha has termed the petrol subsidy plan ‘not workable’.
Speaking to journalists after attending the Senate Standing Committee on Finance meeting, Aisha Ghaus Pasha said there is no suggestion of subsidy on petroleum products and the Petroleum Division had suggested cross-subsidies on petroleum products, which is not workable.
She said that the parleys with the IMF were continuing and now the only outstanding issue remained of the lender getting confirmation on external financing from bilateral countries, including Saudi Arabia and the UAE, which was underway.
“There are indications that financial assistance is expected from bilateral friends very soon, that will help finalise the staff-level agreement with the IMF,” she said.
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