KARACHI: At the beginning of March, the US dollar started moving upward against the rupee, creating space for speculative forces to take advantage, said market sources.

According to the State Bank of Pakistan (SBP), the dollar appreciated by five paise to Rs279.31 in the interbank market on Tuesday. However, banks claimed the dollar price was higher than quoted by the SBP.

For the last three consecutive working days, the rupee has been losing value against the dollar which appreciated from Rs279.11 on Feb 29 to Rs279.31 on March 5.

Market sources said the newly formed government in Islamabad will have to face enormous pressure from the International Monetary Fund (IMF) to ease imports.

Media reports suggest that the IMF aims to see a 50 per cent increase in imports in the remaining months until the end of FY24. While the SBP is trying to hold onto dollars tightly, increasing imports are snatching dollars from the market. So far, the SBP has succeeded in maintaining a stable exchange rate, but the mounting demand for dollars could disrupt this management.

Simultaneously, the government is expected to hastily initiate talks with the IMF for a new $6 billion loan. Market experts suggest that the new government has only a couple of weeks to approach the IMF for a new loan, as fulfilling formalities and meeting demands from the donor agency are necessary before securing final approval for the required funds.

Govt under pressure as IMF seeks 50pc rise in imports for FY24; facing $6bn shortage despite China, UAE rollovers

Currency dealers predict that the market will experience greater fluctuations in March due to increased uncertainty about new loans, new conditions from the IMF, and the uncertain reserve position of the SBP. The central bank is expected to receive $1.2bn from the IMF as the last tranche of the $3bn Stand-By Arrangement at the end of this month or the beginning of April.

However, the government is facing a shortage of at least $6bn to meet the required amount for debt servicing in FY24, despite loan rollovers by China and the UAE.

The open market dollar rates are also managed. Most currency dealers are not providing dollars to customers except for travel. The market fears that rising dollar demand due to higher imports could create a shortage and destabilise the current stable exchange rate.

Market sources said that the situation is supportive for speculators and black markets, emphasising the need for a balance between inflows and outflows, but it appears that outflows will be much higher during the rest of FY24.

Published in Dawn, March 6th, 2024