Farooq Awan

Tuesday brought another big news for Pakistan’s beleaguered economy as PKR rendered a heavy blow to US dollar in the interbank market, appreciating approximately by Rs 15 to trade at as low as Rs 271 as the session began. The value, though, went down to Rs 11 a short while later.

The development comes a day after Pakistan Stock Exchange witnessed its highest single-day gain in last 15 years, with the benchmark KSE-100 index rising by 2,446.32 points to close at 43,899 points against the previous working day’s close of 41,452.68.

Pakistan’s signing a staff-level agreement with the International Monetary Fund (IMF) for a nine-month loan programme of $3 billion a couple of days back has not only helped restore investors’ confidence in the market but also given a badly needed push to the Pakistani currency, which has seen a historical drop of 28% (Rs 81) to Rs 286 against the US dollar during the last fiscal year.

Chairman of Exchange Companies Association of Pakistan (ECAP) Malik Bostan told WealthPK that the last-minute deal with IMF has played it part in easing pressure on Pakistani rupee. He welcomed the appreciation of PKR but maintained that it was more important for the State Bank of Pakistan to ensure that the gains made by the PKR are sustainable in the long run.

Bostan hoped the IMF deal will facilitate foreign direct investment in Pakistan in the near term, which will further help in strengthening of the Pakistani currency. He also urged the government to improve financial governance in the country and introduce investment-friendly policies in order to attract more FDI.

Brokerage firm Topline Securities welcomed PKR’s gain against US dollar both in the interbank and open market but doubted that the recovery was ‘sustainable’. “If Pakistan successfully secures $4-$5 billion from Saudi Arabia, the United Arab Emirates, and Islamic Development Bank as claimed by the government, the dollar liquidity crunch may ease for quite some time,” CEO Mohammad Sohail told WealthPK.

“The partial disbursement of funds agreed by the IMF is expected in mid-July … if Saudi Arabia, UAE and Islamic Development Bank payments are also made well in time, rupee may stay stable for some time,” he opined. “Moreover, If Pakistan is able to rebuild its forex reserves to a $14 billion mark by next month, rupee’s value may stabilise somewhere under Rs 280 to a dollar,” he concluded.

Saad bin Naseer, Director at Mettis Global, said building of forex reserves will have a positive impact on inflow of remittances through banking channels since strengthening of rupee will blow a dent to the hoarders as well as Hawala-Hundi dealers. “Increase in inflow of remittances through banking channels will help PKR stabilise further and also help ease existing curbs on imports due to availability of enough dollars in the country,” he added.

It is important to note here that despite big gains in the last two days, two leading global rating agencies - Moody’s Investors Service and Fitch Ratings - have warned that Pakistan will require significantly more funds than what has been agreed with the IMF to meet its debt maturities and to fund its economic recovery.

According to a report by Bloomberg a day earlier, the IMF deal has sent a positive wave through the Pakistani market with stocks surging the most in 15 years and dollar bonds extending their best run ever. However, quoting the two agencies, it noted that the IMF’s agreed amount is far less than $25 billion, which Pakistan has to repay in the current fiscal year to meet its debt obligations.

Credit: INP-WealthPk