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Why rupee tanked to historic low?

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The Pakistani rupee lost over Rs14, or 5%, against the US dollar in the outgoing week as the cash-strapped economy spirals deeper into a financial crisis amid challenges like looming debt default, shortage of dollars, unsustainable spending, uncontrolled inflation, and nine-year low foreign reserves.

Earlier during the week, the local unit advanced from a record low as the International Monetary Fund (IMF) team began negotiations with Pakistan over the resumption of its $6.5 billion bailout programme; however, Prime Minister Shehbaz Sharif’s rather concerning comments regarding the ongoing parleys sent the currency market reeling.

The PM on Friday said the Fund review mission was giving Finance Minister Ishaq Dar and his team a “very tough time” in the talks —  expected to conclude on February 9.

Following his comments, the market panicked and the rupee devalued by 1.89% (or Rs5.22) to a new all-time low of Rs276.58 against the US dollar on Friday compared to Thursday’s close of Rs271.38.

Cumulatively, the rupee slumped 3.14% (or Rs8.69) in three days, compared to Wednesday’s close of Rs267.89 — the rupee recovered as crucial talks with the Washington-based lender resumed.

Tresmark, in its weekly currency commentary, noted that the rupee fell sharply last week from 264 per dollar to 278.50.

“It seemed to have stabilised around the 270 level, until the prime minister and finance minister spoke out,” the financial terminal for real-time market rates, news, charts, financial data, and technical analysis stated.

It added that when PM Shehbaz said that the IMF was imposing harsh conditions and when the finance czar said they were looking for philanthropists for billions of dollars, “traders assumed that the leadership was still looking for avenues other than IMF or that they would waste more time in negotiating with them.”

“However, in our assessment, the premier may have been only trying to prepare other stakeholders and vote base for harsh steps and measures,” Tresmark said, adding that another important factor behind the rupee’s downfall was the steep decline in total reserves of the country which are now at $8.7 billion (down by $712 million).

PM Shehbaz is battling to keep the economy afloat amid dollar shortages, and political tensions deepen.

Pakistan — with a $350 billion economy — is seeking a crucial instalment of $1.1 billion from the lender of the last resort to avoid default.

Tresmark mentioned that until and unless traders don’t feel confident about things getting better, especially the situation of reserves, the rupee would continue to fall, irrespective of its level.

“Traders we spoke to think the first and second level of resistance of 280 per dollar and 285 per dollar will be breached in the coming week unless the IMF comes on board. They also feel that 270-275 per dollar is the fair level post-IMF agreement, and any outruns will be temporary and will get corrected once there is some visibility of inflow,” the commentary read.

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Finance Minister: A “big” IMF program is coming for Pakistan.

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Speaking at the Karachi Stock Exchange ceremony, the Finance Minister announced that meetings with IMF representatives would take place in Washington on April 14 and 15.

He applauded the caretaker government’s effort to bring about economic stability and predicted that the nation’s economy would stabilize with improved economic policies.

Muhammad Aurangzeb emphasized that in order to move the country’s economy toward stabilization, structural reforms must be implemented.

He restated that the nation’s recovery from the economic crisis depends heavily on the stock market. The stock market is, nevertheless, trending upward.

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Pakistan is still classified as a secondary emerging market by the FTSE.

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The nation could perhaps be demoted, according to the worldwide index provider, since its index weight has decreased over the previous few years.

Pakistan’s market capitalization peaked in 2017 at $100 billion, but it fell to $21 billion by 2024, according to a Bloomberg research.

It did, however, state that Pakistan’s standing as a secondary emerging market will remain unchanged due to favorable political changes brought about by the establishment of a stable government.

Bloomberg saw Shehbaz Sharif’s election as prime minister, who is open to reform, as a step in the right direction for the nation struggling financially.

Shehbaz Sharif, the president of the Pakistan Muslim League-Nawaz, was chosen on March 4 to serve as the country’s 24th prime minister.

With 201 votes, PM Shehbaz defeated Omar Ayub Khan of the Sunni Ittehad Council (SIC) by 92 votes.

over the economy, earlier this month, Pakistan and the International Monetary Fund (IMF) came to an agreement at the staff level over the second and last review conducted under Pakistan’s Stand-By Arrangement.

The IMF secured a staff-level agreement with Pakistan on the second and final review of the nation’s stabilization program, which is backed by the IMF’s US$3 billion (SDR2,250 million) SBA authorized, according to the official statement released by an IMF team led by Nathan Porter.

The remaining US$1.1 billion (SDR 828 million) of SBA access will be made available following the IMF Executive Board’s approval of the deal.

It was reported shortly after the February 8 election that the newly elected PML-N-led government intended to apply for a new IMF credit package.

Pakistan is anticipated to pursue a $6–8 billion loan program from the global lender, and the IMF will be contacted right once to begin negotiations for this. The sources went on to say that the IMF would have tighter requirements this time.

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PM Shehbaz Sharif: “A plan to digitize the tax system is underway.”

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In an address to the All Pakistan Newspapers Society delegation in Islamabad today, the prime minister announced that plans were in motion to update the tax collection system.

The prime minister added that efforts are underway to broaden the revenue base and that the Federal Board of Revenue (FBR) is fully digitizing.

He emphasized that the Tax Excellence Awards were a recent initiative by the government to support female entrepreneurs, exporters, and engaged taxpayers.

The government’s priorities, according to the prime minister, are institutional changes, austerity, domestic and external investment, and privatization of government-owned businesses.

Praiseing the media’s contribution to public awareness-raising and good governance, he called on the sector to successfully communicate the benefits of economic stability under SIFC.

Calling fake news a major problem, he emphasized the need for cooperation to combat it. Additionally, he extended an invitation to the press to back Pakistan’s administration in its endeavors for the country’s growth and well-being.

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