Rupee strengthens amid expectations of IMF inflows

Over the past three months, the Pakistani rupee has steadily strengthened against the US dollar, nearing Rs277 in the interbank market on Tuesday, driven by optimism surrounding potential fresh funds from the International Monetary Fund (IMF).

However, a recent uptick in terrorist attacks within the country, including the tragic killing of five Chinese engineers involved in the Dasu hydropower project, poses a significant threat to the government’s intention to launch $300 million Panda bonds in the Chinese market, according to financial analysts.

The State Bank of Pakistan (SBP) announced a five-paise drop in the dollar’s value, closing at Rs278.08, marking a five-month low against the rupee. Exporters, grappling with the consistent depreciation, are compelled to offload their dollar earnings amid mounting concerns of further devaluation in the near future.

Experts in the currency market observe a scarcity of dollars in banking channels due to subdued demand, attributable to government measures aimed at curbing imports. A senior banker remarked that expectations of increased dollar inflows are bolstering market sentiment for exchange rate stability.

Anticipation mounts for the rupee to appreciate further following the government’s attainment of a Staff-Level Agreement with the IMF for the final tranche of $1.1 billion scheduled for next month, part of the ongoing $3 billion Stand-by Arrangement. Nonetheless, an unnamed financial analyst expressed dismay over the recent terrorist attack on Chinese nationals, cautioning that it could negatively impact economic ties with China and necessitate a pause on the planned issuance of Panda bonds.

Finance Minister Muhammad Aurangzeb had articulated the government’s interest in accessing the Chinese market for fundraising through Panda bonds this year. The future trajectory also hinges on China’s response to the tragic incident and may influence the timing of the Prime Minister’s upcoming visit to China.

Notably, Chinese investments in Pakistan have already dwindled, with foreign direct investment plummeting to $80.4 million in the first eight months of the current fiscal year compared to $472 million during the same period last year.

The new administration aims to revitalize economic cooperation and attract Chinese investment as part of the renewed phase of the China-Pakistan Economic Corridor (CPEC).

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