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‘IMF giving Pakistan tough time’: Dollar soars to historic high of Rs279 after PM’s comments

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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.

Pakistan-IMF talks

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).

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Over 600 points are added by PSX in intraday trading.

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Tuesday’s lunchtime trading on the Pakistan Stock Exchange saw favorable activity.

During intraday trading, the benchmark KSE-100 Index increased by 672.08 points, or 1.11%, and was trading at 61131.82 levels.

The KSE-30 Index was trading at 20,558.31 after adding 211.46 points, or 1.04%.

The Pakistan Muslim League-Nawaz (PML-N) and the Pakistan Peoples’ Party (PPP) had another round of discussions for the establishment of a central government the day before the rally in the local stock exchange.

In the meanwhile, Fitch Ratings has issued a warning, stating that the likelihood of default would rise in the event of a drawn-out discussion or the inability to reach an agreement with the International Monetary Fund (IMF).

According to the State Bank of Pakistan, which reported net foreign reserves of $8 billion as of February 9, 2024, up from a low of $2.9 billion on February 3, 2023, Pakistan’s external situation has improved recently.

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The smartphone app “Tajir Dost” to tax Pakistani businesses is anticipated to launch on February 22.

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The sources stated that the caretaker administration aims to include 3.5 million shops in the tax net by use of the “Tajir Dost” app.

They said that Anwaar-ul-Haq Kakar, the acting prime minister, has instructed the relevant authorities to conclude their engagement with the retailing bodies within a few days.

The introduction of the “Tajir Dost” smartphone app to impose taxes on several merchants was authorized earlier this month by the acting federal administration.

The smartphone application, created by Pakistan Revenue Authority Limited (PRAL), a division of the Federal Board of Revenue (FBR), is intended to serve as a registration tool for shops and dealers throughout the nation.

The app’s database will be updated with the traders’ information who have already registered with the FBR.

Previously, in December 2023, the Federal Board of Revenue (FBR) made history by collecting Rs1.021 trillion. After deducting refunds of Rs 38 billion that were given out that month, the FBR’s net collection increased to Rs 984 billion.

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SBP confirms the choice to use new currency notes was not influenced by the IMF.

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In response to recent rumours, Saleem Ullah, the deputy governor of the State Bank of Pakistan (SBP), said on Thursday that the International Monetary Fund (IMF) had no influence over the decision to release new currency notes.

Saleem Ullah underlined in an interview that printing new notes is a regular procedure carried out every 15 to 20 years to maintain the currency’s integrity.

He stressed that, in contrast to rumours, the deficit is expected to decline in the next fiscal year, in line with the goals of the new monetary policy.

“Every 15 to 20 years, new notes are printed,” he clarified. The new currency’s goal is to keep the note’s integrity intact.”

The SBP assured the public earlier this week that the current banknote series will continue to be in circulation despite the introduction of new currency notes, which it intended to implement over the course of the next two years.

Regarding the latest series of currency notes, the deputy governor clarified that they were launched in 2005 and were in circulation for three years.

He admitted that the procedure was time-consuming and estimated that because of the careful preparation required, it would take around two years to issue the first note.

In addition, he guaranteed that the new banknotes will have improved security measures because they would be made using contemporary technology. He gave information regarding the SBP’s effort to get public feedback on the new currency notes’ design, highlighting the fact that recommendations were being actively sought from the populace.

“There are three prizes for each denomination, and there are a total of seven denominations, hence 21 prizes,” he disclosed, highlighting the process’ openness. First place is worth Rs 1 million, second place is worth Rs 500,000, and third place is worth Rs 300,000.

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