As Pakistan negotiates a rescue plan, the rupee has fallen by approximately 7% in May, the most since March 2020.
The Pakistani rupee is on track for its worst monthly drop in more than two years, as the country’s finances deteriorate and the International Monetary Fund’s bailout plan remains uncertain.
As the country negotiates a bailout plan with the IMF and other nations to keep its economy afloat and avoid default, the rupee has dropped roughly 7% in May, the most since March 2020. Despite the government’s efforts to meet the IMF’s conditions, analysts expect the currency to stay under pressure.
Pakistan will require $36 billion to $37 billion in finance for the fiscal year beginning in June, according to Finance Minister Miftah Ismail. This year’s funding gap, according to Morgan Stanley, could be as high as $8 billion. The need for an IMF rescue has grown urgent, since countries who have traditionally been generous lenders are now treading more carefully.
“Pakistan’s finance needs for the coming year will be met, but they’ll be tight, which will keep the currency under pressure,” said Saad Khan, head of research at Karachi’s IGI Securities Ltd.
The rupee is expected to fall to 220 per dollar by the end of the year, according to IGI and Ismail Iqbal Securities Pvt. On Monday, it finished at 199.06 per dollar.
In June, Pakistan hopes to reach an agreement with the fund at the staff level to unlock the remaining $3 billion from its loan programme. It has also asked for a $2 billion increase in the loan size. According to Bloomberg data, it has $3.2 billion in debt due this year, the greatest amount in the next decade.
“With risk-on mood, the currency may begin to stabilise in the near term, but we still expect it to decline in the long run,” said Raphael Mok, head of Asia nation risk at Fitch Solutions in Singapore. “Pakistan continues to have a large current-account deficit and will continue to be reliant on external funding circumstances.”