Pakistan rupee in de facto devaluation as bailout talks loom

ISLAMABAD: The Pakistani rupee fell about 7% yesterday in an apparent central bank devaluation, while the stock market snapped a six-day skid after the government said it plans to seek a bailout from the International Monetary Fund (IMF).

The country’s fifth devaluation since December, taking rupee losses to about 26%, had been expected and seen as a prerequisite for another IMF rescue package. In 2013, the IMF lent Islamabad US$6.7 billion (RM27.8 billion).

It is expected Pakistan will need a bigger sum this year to avoid a balance of payments crisis and stabilise a wobbly economy hurt by a shortage of dollars plus ballooning current account and fiscal deficits.

But the IMF is likely to demand painful structural reforms that would clash with the political agenda of new Prime Minister Imran Khan, who on the campaign trail vowed to build an Islamic welfare state.

Pakistan’s stock market index, sliding since Oct 1, shot up nearly 3% on news Islamabad plans to seek its 13th IMF bailout since 1988. At 0700 GMT, the main index was 1.2% higher.

“Going to the IMF is a positive trigger because it will remove the underlying causes for concern, which is that government targets will further weaken,” said Suleman Maniya, head of research at local brokerage house Shajar Capital.

“It’s a positive rather than a negative thing for a country like Pakistan where you generally see targets not being met.”

Pakistan’s fiscal deficit was on target to hit 7.2% of gross domestic product in the fiscal year ending in June 2019, but the government has introduced measures to bring it closer to 5%. – Reuters