Pakistani finmin says rupee’s fall not due to economic fundamentals

KARACHI, Pakistan, July 20 (Reuters) – Pakistan’s finance minister blamed the rupiah’s decline on Wednesday on political unrest, saying he expects market jitters over the currency’s sharp decline will s soon fades.

The South Asian country has recently gone through a new period of political instability, with the government of Prime Minister Shehbaz Sharif taking over from ousted Prime Minister Imran Khan in April.

“The rupee’s decline is not due to economic fundamentals,” Finance Minister Miftah Ismail told Reuters. “The panic is mainly due to the political unrest, which will subside in a few days.”

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Pakistan is also suffering from a rapid depletion of foreign exchange reserves, a declining currency and widening budget and current account deficits, with the rupee having lost 18% of its value since December 21.

The rupee fell 2% on Monday and 3% on Tuesday despite last week’s staff level agreement with the International Monetary Fund that would pave the way for a $1.17 billion disbursement as part of the recovery bailout payments. Read more

The rupee was trading at 225 to the dollar on Wednesday morning, having ended at 221.99 on Tuesday after ratings agency Fitch revised its outlook for Pakistan’s sovereign debt from stable to negative – although it confirmed long-term foreign currency and issuer default rating at “B”. -“. Read more

“There is panic in the market, I am afraid it (the rupee) will fall further,” Zafar Paracha, secretary general of a foreign exchange association, the Exchange Companies of Pakistan, told Reuters.

Parsha said he saw no reason for the rupiah’s depreciation other than possible IMF preconditions.

Neither the government nor the IMF have said anything about the need for further currency depreciation, although Pakistan recently adopted a market-based exchange rate on the advice of the IMF under the economic reform program.

Ismail said imports, which have put pressure on the rupee, have been curbed and the current account deficit contained in the first 18 days of the new fiscal year this month, and pressure on the rupee would weaken in the future.

He told a news conference that the IMF estimated there was still a $4 billion funding gap that would be filled by various friendly countries which he declined to identify.

One of them, he said, had offered $1.2 billion in financing for oil purchases that would soon be finalized. Another had pledged to invest $1 billion in the Pakistan Stock Exchange (PSX) and while the third had pledged $200-300 million in gas on deferred payments.

A fourth country offered $2 billion in SDR (special drawing rights) deposits, Ismail said.

Reserves fell to $9.8 billion, barely enough to pay for 45 days of imports.

“Over the last three months we have tried to reduce imports, we have had some successes and some failures… With the ban on imports of cars and mobile phones assembled abroad, we have taken advantage of this” , Ismail told reporters.

“We have applied for clearance from the State Bank of Pakistan for the letters of credit required for imports worth between $100,000 and $500,000, which the central bank usually approves, but the process takes eight ten days,” he said.

Measures taken so far have reduced imports from some $7 billion in June to just $2.6 billion in the first 18 days of July, he said.

On Tuesday, Pakistani-issued dollar sovereign bonds suffered steep losses to record highs after Fitch’s decision, while the Pakistan Stock Exchange’s KSE100 index .KSE fell 2.36%.

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Written by Gibran Peshimam; Editing by Simon Cameron-Moore and Mark Heinrich

Our standards: The Thomson Reuters Trust Principles.

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