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• Attributes slide of rupee to ‘political turmoil’
• Economic fundamentals on trade front in ‘ideal situation’
• PM briefed on financial situation as economy ‘goes south’
• Economic, political situation tops agenda as cabinet meets today
ISLAMABAD: Blaming political factors for the latest downturn in currency and share markets, Pakistan’s economic managers tried on Wednesday to reassure that macroeconomic fundamentals were stabilising and $8.5-10 billion inflows have been lined up from friendly countries against a financing gap of $4bn estimated by the International Monetary Fund (IMF).
Simultaneously, economic managers of both incumbent and former PTI governments appeared to hint at the continuation of a staff-level agreement with the IMF under an interim set-up.
While Finance Minister Miftah Ismail and senior State Bank of Pakistan (SBP) officials said the IMF had no problem working with an interim set-up, former finance minister Shaukat Tarin also offered cooperating with a “credible interim government” on the continuation of the IMF programme.
Mr Ismail announced at a news conference that economic fundamentals on the trade front had been corrected to an “ideal situation”, in which exports and remittances were now financing imports, as evident from the latest numbers for the first 18 days of the current month.
He said the country had a trade deficit of $48bn and a current account deficit of $17bn last fiscal year ending June 30, but the measures taken by the current government had started showing results as imports flattened to $2.6bn in the first 18 days of July against $7.2bn in June. This means the government would be able to have about $2bn in import savings this month.
The minister said the staff-level agreement had been achieved on the IMF programme and there was no disruption to it and no chance of derailment as the government was committed to the implementation of all agreed prior actions and measures in letter and spirit before the Fund’s executive board’s approval.
With this, the inflows from the World Bank, Asian Development Bank (ADB) and Asian Infrastructure and Investment Bank (AIIB) have been revived.
He said the IMF estimated that despite the World Bank, ADB and AIIB support, there would be a financing gap of $4bn during the current fiscal year for which an agreement would be reached in a day or two with a friendly nation for about $1.2bn worth of oil supplies at the rate of $100 million per month.
Another friendly country would be investing $1-2bn in the stock market under a government-to-government (G2G) mechanism that had been approved by the cabinet and sent to its committee on disposal of legislative cases for vetting.
Moreover, another friendly country was expected to provide $2.4bn worth of natural gas on deferred payment and another country had promised a $2bn bank deposit.
All these supports in the form of oil, gas and deposits put together worked out at $6.6bn and would materialise in a few days and maybe some of them be announced in a couple of days during the foreign visits of Prime Minister Shehbaz Sharif.
A fourth country had offered 2bn in special drawing rights (SDR) deposits (around $2.63bn), Mr Ismail said, adding that this country had already talked to the IMF, which was currently examining the proposal for which past precedents were available in the IMF history.
The government was also considering privatising two LNG power plants at Balloki and Haveli Bahadur Shah in Punjab at about $2bn on a G2G basis, but that might take some time to materialise, he said. “So, our funding requirements are comfortably complete.”
Rupee’s slide
He said the local currency’s depreciation this week “originated from the political situation and had nothing to do with the economic situation”.
The rupee fell 2pc on Monday and 3pc on Tuesday despite last week’s staff-level agreement with the IMF. On Wednesday, the rupee further slid 1.3pc to 224.92 per dollar, having ended Tuesday at 221.99.
Mr Ismail said all currencies had depreciated against the greenback because of a “once-in-a-generation strengthening of dollar owing to US Fed’s monetary tightening”.
While the minister claimed that the political situation would stabilise over the next couple of days, he parried repeated questions over the basis of his optimism.
‘Economic shock worse than Covid’
Separately, a senior SBP official told journalists the current economic shock was worse than the Covid-19 as many things were happening simultaneously and US central bank’s monetary tightening was always painful for emerging economies and resultantly even large economies were struggling.
The SBP official said Pakistan’s trust pattern had turned very low after the Feb 28 policy reversals after international commitments and the international community was not ready this time to bail out the country before it showed results on grounds.
He dispelled the impression that the central bank was a silent spectator to the rupee’s depreciation, saying it was intervening in disorderly movement and was working with banks and taking other steps as well. “The country needs a bridge between now and until we start receiving funds” from abroad, he said.
He said a better indicator of the rupee’s strength was the real effective exchange rate — which takes into account the currencies in which Pakistan trades in inflation-adjusted terms — according to which the Pakistani currency had depreciated only 3pc since December.
PM briefed on economy
Meanwhile, the country’s economic team briefed Prime Minister Sharif as the dollar’s sharp rise had become a source of deep concern for the government.
The premier called an emergency meeting on the economic situation of the country, Prime Minister Office said Wednesday.
The meeting — held in Islamabad and attended by the economic team and top officials related to the economy — evaluated the factors for the recent hike in the dollar’s value and the measures to address it. Mr Sharif, presently in Lahore, chaired the meeting via a video link.
A source privy to the meeting told Dawn the prime minister said the country’s uncertain political situation was the main reason behind the dollar’s flight.
The meeting discussed ways and means how to stabilise the rupee and expressed concern that the local currency continued sliding against the dollar despite a ban on the import of hundreds of items.
Cabinet meeting today
Mr Sharif has also called a meeting of the federal cabinet on Thursday (today) to discuss the economic and political situation. He will chair the meeting from Lahore via a video link.
According to the agenda, the meeting will discuss the multimodal air-road corridor for Afghan Transit Trade and will also make a decision on the “trade in goods” agreement with Turkiye.
The meeting will also make a decision on the transfer of amount to the government of Afghanistan for functioning/maintenance/equipment/salaries of three Pakistani hospitals.
The appointment Federal Land Commission’s chairman is also on the agenda.
Published in Dawn, July 21st, 2022
