The Pakistani rupee has fallen sharply against the US dollar due to delays in signing a staff-level agreement with the International Monetary Fund (IMF). The local currency fell by Rs19.98 against the US dollar, closing at Rs285.09 in the interbank market. The currency has weakened by nearly 20% since the start of the year. The IMF has asked Pakistan to implement demands before reaching a staff-level agreement for the revival of a $7 billion Extended Fund Facility (EFF) stalled for months.
The delay in signing an agreement with the IMF is causing uncertainty in Pakistan’s markets. Analysts attribute this downtrend to the delay in signing an agreement with the IMF, as well as an impending policy rate hike by Pakistan’s central bank. The fiscal adjustments demanded by any deal are likely to further fuel record high inflation, which hit 31.5% year-on-year in February.
What is the IMF Deal?
The IMF deal is a loan agreement between Pakistan and the International Monetary Fund (IMF) that will provide Pakistan with much-needed funds. The agreement is subject to approval by the IMF’s Executive Board. The Pakistani government has agreed to implement fiscal measures demanded by the IMF, including raising 170 billion Pakistani rupees ($627m) through new taxes and other measures. The rupee has been dropping to adjust to a market-based exchange rate after an artificial upper cap on the local currency was lifted in line with IMF demands.