Fitch Ratings expects Pakistani rupee to weaken to Rs148
IMF is putting Imran Khan administration through paces to analyse why previous reforms have failed
(Dunya News) – Fitch Ratings on Thursday expected the Pakistani rupee to remain stable in the near term at around Rs 140 level before weakening to Rs148 by end next year while agreement with IMF would be signed possibly in first quarter of 2019 with package would likely to be under $8 billion.
Fitch Ratings released a report on Thursday said that talks with the IMF over the bailout package hit a snag in November, we believe that an eventual agreement is likely, possibly in Q119.
In Fitch’s view, the IMF has adopted a tougher stance on Pakistan as compared with previous rounds of bailout. The first round of talks between the IMF and the Pakistani government, which ended on November 20, was inconclusive after both s ides failed to bridge the gulf on a wide range of issues such as the increase in electricity prices, hike in interest rate, rupee devaluation, tax collection targets , and the circular debt problem at the state’s utilities.
Pakistan is unlikely to receive the US$8.0 billion bailout package from the Fund by the next board meeting scheduled for January 15 as the lender wants the government to adopt stricter measures to address the country’s economic imbalances before sending the country s case to its Executive Board.
The IMF is putting the new Imran Khan administration through its paces to analyse why previous reforms have failed to come to fruition. In particular, the Fund has questioned as to why the previous strategy for ending circular debt was not fully implemented after completion of the previous bailout program in November 2016 , noting that the ‘reversal of policies and lackluster attitude on reform path has played havoc with the country’s economy’.
The IMF team also stated that ‘the reversal of policies on many fronts is the main cause of existing quagmire which Pakistan’s economy is witnessing currently, and now ‘Pakistan will have to undertake a comprehensive package’.
Despite the seemingly tough negotiations, we continue to believe that both sides will eventually reach a deal over the coming months.
The recent oil price collapse will reduce Pakistan s oil import bill. This will in turn help avoid a sharp contraction in non-oil imports, which could be the trigger of a recession.
With the collapse in oil prices seen in October and November, the Pakistani economy has been given a huge helping hand given that Pakistan is a net oil importer, and we at Fitch Solutions believe that the combination of low oil prices and an eventual IMF bailout will help the economy regain some of its footing.
Nevertheless, we expect the rupee to weaken further against the USD over the coming quarters, as the IMF would typically require the central bank to build up its foreign reserves buffers.
