KARACHI: The latest proposal of the International Monetary Fund (IMF) to further liberalise imports could destabilise rupee-dollar parity, said market sources.

“The IMF wants to see up to 45 per cent increase in the imports in the second half of the current fiscal year which would surely put pressure on the exchange rate,” a well-informed senior banker told Dawn on Thursday.

He said the IMF has drafted new conditions for the release of the last tranche of $1.2 billion under the $3bn Stand-By Arrangement in March.

“I believe Pakistan will receive the remaining $1.2bn but will have to liberate the imports which surely put pressure on the exchange rate,” said the banker.

Fund sets new conditions before releasing last tranche of $1.2bn

Imports declined by 16pc during the first half of the current fiscal year. If the country fails to allow imports as per the IMF direction, it would be highly difficult for the new government to approach the fund for another bailout package of over $6bn.

So far the importers have not received any leniency from the banks for opening the letters of credit while some bankers said it is impossible to liberalise the imports to that extent.

The State Bank of Pakistan (SBP) has foreign exchange reserves to cover only six-week imports. At the same time, the government is still short of $6bn for debt servicing required for the current fiscal year.

Uptick in SBP reserves

Meanwhile the SBP on Thursday announced that its foreign exchange reserves increased by meagre $13 million to $8.056bn during the week ended on Feb 9.

In the preceding week, the SBP reserves fell by $173m despite an inflow of $700m from the IMF.

Pakistan has failed to raise dollars from the international markets due to uncertain political and economic conditions. The economy could not perform to improve the growth rate.

The IMF has forecast a 2pc GDP growth in FY24 against a contraction in FY23. However, analysts and experts said the growth is much lower than the requirement of the country. This will increase the unemployment and further slash the revenue. At present, most of the increase in revenue is due to 29pc inflation.

The SBP did not explain the increase in the reserves but the market source said the bank has been borrowing from the interbank market to improve its forex holdings.

The dollar appreciated by just six paise and closed at Rs279.38 in the interbank market on Thursday.

The SBP data shows that the total reserves of the county at the end of the week were $13.149bn including $5.092bn of the commercial banks.

Published in Dawn, February 16th, 2024

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