KARACHI: The shortage of cash rupee due to the bank holidays provided an opportunity to several money changers to buy the dollar on their own available rates, which was in the range of Rs275 to Rs285 on Monday, currency traders said.

The first day trading of the open market after Pakistan’s Standby Agreement (SBA) with IMF for $3 billion created sense of economic stability with better price of the rupee. Due to bank holidays, only a few exchange companies had cash rupees, and even that was limited. Most of the companies were unable to buy dollars despite the rush for sale.

“The long holidays of the banks kept the exchange companies out of cash. Only few branches have some cash and they bought dollars at their own available rates which was in the range of Rs275 to Rs285,” said Malik Bostan, Chairman of Exchange Companies Association of Pakistan.

On Saturday, when only a few branches of exchange companies were operating at the country’s airports, the dollar was traded in the range of Rs280-283.

IMF deal seen as temporary relief for struggling economy

Exchange companies said that there were only sellers; no buyers for dollars were available. In fact, the open market has lost most of its business with banks due to the State Bank of Pakistan’s decision, which allows banks to purchase dollars from the banking market instead of exchange companies.

“The market trading was very thin. It was not enough to judge the actual impact of the agreement with the IMF. The opening of banks on Tuesday will give a clear idea about the impact of the IMF agreement on exchange rate,” said Mr Bostan.

Under the agreement, import restrictions would be removed, a single exchange rate would be implemented, and the government would accelerate its efforts for bilateral inflows.

Experts said that these conditions, particularly the removal of import restrictions, would exert more pressure on the exchange rate. The demand for dollars would increase, potentially widening the trade deficit, which stood at over $27 billion in FY23, and leading to a possible devaluation of the PKR once again.

“Pakistan has achieved a significant breakthrough by signing a new nine-month SBA deal with the IMF worth $3bn. The successful signing of SBA becomes even more crucial to address the country’s pressing challenges especially on the external front,” said a report of Arif Habib Limited.

The staff-level agreement reached between Pakistan and the IMF for the new SBA is now subject to approval by the IMF Executive Board, which is expected by mid-July.

However, some analysts see the SBA a temporary relief for the economy struggling hard to avoid default. The country will have to pay about $25bn as debt servicing in FY24 reflecting the growing needs of the dollar inflows. It would be more difficult when outflows would be higher with easing of imports and decline of exports.

Published in Dawn, July 4th, 2023