The rupee continued to lose ground against the US dollar on Thursday and depreciated by 50 paisa in the interbank market as talks between the government and the International Monetary Fund (IMF) remain inconclusive.
According to the Forex Association of Pakistan (FAP), the dollar was trading at Rs202.40 at around 1:30pm after appreciating against Wednesday's close of Rs201.90.
In the open market, the greenback was trading at Rs203.50 around 1:30pm.
The persistent decline in the rupee's value since May 10 has been largely attributed to the country's rising import bill, widening current account deficit and depleting foreign exchange reserves.
Since the PML-N-led coalition government took over on April 11, when the dollar was valued at Rs182.30, the greenback has risen by Rs20.1, or 11per cent.
FAP secretary general Zafar Paracha blamed government's inconclusive talks with the IMF for the depreciation of the rupee. He told Dawn.com that investors had been hopeful of a breakthrough.
"But they [the facility] refused to release the funds until the removal of fuel subsidies. This development has increased the pressure on the rupee," he pointed out.
Moreover, Malik Bostan, chairman of the Forex Association of Pakistan, said that rupee's fall was also because of the falling foreign exchange reserves and over $10 billion of external payments due.
"Loan from international financial institutions can alleviate the pressure on the rupee," Bostan suggested.
Yesterday, the IMF said it had "emphasised the urgency of concrete policy actions, including in the context of removing fuel and energy subsidies and the FY2023 budget, to achieve program objectives".
According to the facility, the mission held "highly constructive discussions" with the Pakistani authorities aimed at reaching an agreement on policies and reforms that would lead to the conclusion of the pending seventh review of the authorities’ reform programme.
It said the considerable progress was made during the mission, including on the need to continue to address high inflation and the elevated fiscal and current account deficits, while ensuring adequate protection for the most vulnerable.
"In this regard, the further increase in policy rates implemented on May 23 was a welcome step. On the fiscal side, there have been deviations from the policies agreed upon in the last review, partly reflecting the fuel and power subsidies announced by the authorities in February," the IMF added.
Meanwhile, a senior government official told Dawn that the IMF mission showed relaxation to the extent of allowing the authorities to take a decision within a couple of days to steer clear the situation if they wanted to get back on table.
Overall, the Fund programme is deep in unchartered waters, said another government official, adding the talks could resume only after the government takes decisive actions at the earliest to have an iron clad programme implementation through the federal budget due on June 10.
Govt's indecision keeps economy on edge
The PSX and the rupee have both come under pressure over the past week as the government has failed to take decisive economic decisions, most prominent among which is a reversal of fuel subsidies.
Analysts and experts have linked the economic pressure to uncertainty over the continuation of the IMF loan programme coupled with a rising oil import bill and widening trade deficit.
The PSX lost 1,447.67 points on May 9 in what was called a "blood bath".
Dawn's editorial on May 11 noted that the most important factor behind the erosion of investor sentiment was the failure of the new coalition government to come up with a credible plan to take politically tough decisions to fix the economy. For example, it continuously decided against the reversal of the fiscally unsustainable fuel and energy subsidies, which is the ‘prior action’ that IMF wants it to take before it agrees to restart funding.
In recent meetings with Ismail, the IMF linked the continuation of its loan programme with the reversal of fuel subsidies, which were introduced by the previous government. However, Prime Minister Shehbaz Sharif has multiple times rejected summaries by the Oil and Gas Regulatory Authority and the finance ministry to increase fuel prices.
The PTI had announced a four-month freeze (until June 30) on petrol and electricity prices on February 28 as part of a series of measures to bring relief to the public.
At the time, and even after coming into power last month, the PML-N and other parties part of the new coalition government had severely criticised Imran Khan's government for "derailing" the IMF programme through unfunded fuel subsidies. But despite being at the helm for over a month, these parties have not reversed the subsidies; although the finance minister has repeatedly said these subsidies are not feasible and are costing the government Rs120 billion a month.
Earlier this month, Ismail said petrol should have been priced at Rs245 per litre according to the agreement the former government did with the IMF. However, the PML-N led government was still selling it at Rs145 per litre and would try its best to maintain that price, he added — a sign that the new government is finding it difficult to take a decision that might be unpopular with its voters.
In an editorial published on May 13, Dawn said that the PML-N was caught up in 'private consultations' — a reference to the senior leadership's trip to London to meet with Nawaz Sharif — as panic continues to grow over its inability to start working on fixing the economy.
The editorial called for the PML-N to firmly decide its future course of action, saying: "It’s time to lead or get out of the way."