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Rupee continues to decline precipitously versus the dollar as pressure builds up before the IMF deal

Ahead of the executive board meeting of the International Monetary Fund (IMF), which is set to take place on August 29 in Washington, the Pakistani rupee on Wednesday plunged even further against the US dollar.

The local currency rose from yesterday’s end of 217.66 to settle at 218.38 in the interbank market, losing 0.72 to the dollar.

According to economic experts, the rupee would remain under pressure until the IMF board approves the payment of Pakistan’s $1.17 billion tranche. Acting Governor of the State Bank of Pakistan, Murtaza Syed, told Bloomberg TV that Pakistan will probably get a $1.17 billion loan tranche from the IMF within six days of the Executive Board’s approval.

The country’s foreign exchange reserves, which fell to $8 billion due to a delay in the reactivation of the IMF agreement and external flows, will increase to $16 billion by the end of the current fiscal year 2022–2023, according to the acting governor.

Once Pakistan receives the IMF loan, analysts believe the country will receive additional funding from multilateral and bilateral organisations, helping to replenish its dwindling foreign exchange reserves.

In addition to the IMF’s pressure, the government withdrew the months-long restriction on the import of luxury goods, and the speed of export growth has not kept up with expectations, which has put pressure on the rupee.

In addition, Pakistani travellers now have to disclose 5,000 dirhams at the airport upon arrival in the UAE, which has increased the cost of the US dollar on the open market.

Dr. Khaqan Hassan Najeeb, an economist and former consultant to the federal ministry of finance, claimed that recent political developments are partly to blame for the rupee’s decline, which is producing market anxiety in addition to the dollar’s global strengthening.

He added that the State Bank of Pakistan’s (SBP) declining foreign reserve holdings were another factor in the decline. With only $7.8 billion in reserves, there is barely enough money to cover a month’s worth of imports.

According to Arab News, the local unit’s decline was caused, among other things, by its smuggling to Afghanistan, where dealers receive greater prices, according to Exchange Companies Association of Pakistan (ECAP) General-Secretary Zafar Paracha.