A day after plummeting to an all-time low, the Pakistan rupee on Friday recovered against the US dollar, with analysts attributing it to expectations that the government would reach an agreement with the International Monetary Fund (IMF).

The local currency closed at Rs278.46 per dollar in the interbank market, an appreciation of Rs6.63 or 2.38 per cent from yesterday’s close of Rs285.09, data shared by the State Bank of Pakistan showed.

Saad Bin Naseer, director of financial data and analytics portal Mettis Global, told Dawn.com that after the rupee’s fall yesterday, a sense of panic prevailed in the market and people thought that the IMF programme won’t be completed.

“Nobody was ready to sell dollars. In the black market, the greenback was being sold at Rs290-295,” he said. “Even banks were quoting these rates against the payments.”

However, Naseer continued, the announcement of the 300 basis points increase in the interest rate indicated that the government was serious about the IMF programme.

He hoped that the agreement with the global lender will be signed within this week. “Once that happens, you will see that the dollar, which is overvalued right now, come down to Rs260 or below,” Naseer added.

Zafar Paracha, secretary general of the Exchange Companies Association of Pakistan (Ecap), explained to Dawn.com that the rupee’s recovery was expected.

“It was one of the conditions put forward by the IMF to trade dollar at the current Afghan trade rate,” he said. “The grey market cannot be openly named but it was formed because of the government’s policies.”

Paracha said that the government imposed restrictions on foreign exchange, and as a result, the trade shifted to the grey market.

He also stated that market players wanted to invest money in Pakistan’s T-bills at 20 to 22 per cent and they played a “major role” in hyping the dollar rate.

Paracha further said that market players had turned the dollar and rupee into a “ping pong”, emphasising that this wasn’t acceptable anywhere in the world.

He also said that the government needed to rectify its policies as far as smuggling across the borders was concerned.

Meanwhile, Alpha Beta Core CEO Khurram Schehzad noted that the volatility in the rupee’s rate, more than anything else, created uncertainty and panic in the minds of lenders, investors, importers and exporters.

Govt completes prior actions needed for IMF agreement

A day earlier, Dawn reported that the government has completed all the prior actions needed for the staff-level agreement with the Fund.

Sources told Dawn that policy actions stood completed after the exchange rate was allowed to move freely with a massive Rs25 per dollar depreciation in two days, an unusual 300-basis-point surge in State Bank’s policy, and the government’s announcement of continuing with an almost 10pc increase in power rates on a permanent basis through a special surcharge.

These sources said the two sides were now jointly working to finalise the text of the Memorandum of Economic and Financial Policy (MEFP) and targets for the programme implementation that could be presented to the IMF’s executive board for approval.

This would involve the programme monitoring tools like performance criteria, indicative targets and other similar reporting benchmarks for agreed upon macroeconomic framework.

The IMF mission is reported to have now promised to move the case to the executive board “in the most agile fashion possible” against a normal process of about six weeks.

Now that the government commitments for programme implementation are clear and confusion about needed policies removed, the two sides were jointly engaging with bilateral lenders and international financial institutions for financing flow to keep the country current on external payments.

“This is a work in progress at this stage and, in fact, the Fund is now facilitating this coordination,” an informed source said. The IMF’s advisory role in the process, the sources said, was giving confidence to all partners that policies are sustainable for economic growth and development.

There was now complete commonality of understanding between the two sides on all matters that prolonged an outcome since the IMF staff mission left Pakistan on Feb 9.

As the authorities reached the last leg of prior action completion, the prevailing economic and political uncertainties set rumour mills in motion.

Finance Minister Ishaq Dar responded through a statement that “our negotiations with IMF are about to conclude and we expect to sign a staff-level agreement with IMF by next week”, and that “anti-Pakistan elements” were spreading malicious rumours that Pakistan might default.

The government has already met other prior actions with the imposition of Rs170bn additional taxes for the current year and their continuation for next with over Rs500bn annual yield.

The cabinet has also approved a Rs3.82 per unit surcharge on electricity for the current year, and enhanced gas rates by up to 124pc.

On successful completion, Pakistan would be entitled to 894 special drawing rights (SDRs) of the IMF with a calculated value of $1.2bn.

The tranche had been delayed since October last year because of the government’s reluctance to allow free movement of the exchange rate, increasing the interest rate and full-cost recovery of power supply through additional surcharges and other adjustments to generate more than Rs600bn in less than two years.

Pakistan is in the midst of a severe economic crisis, with its reserves depleting to just over $3 billion, enough to cover only three weeks of imports. In such a situation, the country urgently needs to sign a deal with the IMF that would not only release $1.2bn but also unlock funding from friendly countries and other multilateral lenders.