Pakistan is in the midst of negotiations with the International Monetary Fund (IMF) for a $6.7 billion bailout. The rupee was devalued in January, causing it to lose over 20% of its value this year. However, Fitch Ratings suggests that Pakistan will not devalue further as pressure on the currency has eased.
Krisjanis Krustins, a Hong Kong-based director at Fitch, has commented that “the currency has been very stable over the past few months, pressure on the reserves of the State Bank of Pakistan has also been contained, which suggests minimal interventions to support the currency.” The IMF is working with Pakistan to fix its currency market before resuming the bailout program, which is set to expire this month.
Pakistan’s economy is facing a lot of challenges which means this aid package is crucial to avoid a sovereign default. The nation’s dollar stockpile reached $4 billion in February, after falling by over 50% in the past 12 months. Pakistan has narrowed its funding gap and hopes for a much-needed IMF loan this week. However, IMF has requested Pakistan fix its currency market before the loan resumes.
According to Krisjanis Krustins, “the window for this is rapidly closing, with the program originally set to expire in June, and substantive progress unlikely in the immediate run-up to elections due by October.” Although the election is bringing uncertainty for the Pakistan Stock Exchange, attention to the slow progress on economic reforms may devalue the rupee in the near future.
Many investors will be keeping a close eye on Pakistan as the economy is facing a period of change. With the IMF stabilizing the country’s situation, it sets out a structure for restructuring the economy. The restructuring of an economy is the process by which a new government implements changes in the financial apparatus of a country so as to increase growth.
In conclusion, the situation in Pakistan is changing due to its negotiations with the IMF and the upcoming elections. However, it seems that Pakistan will avoid devaluing its currency further as pressure has eased leading to a stable currency over the past few months. Pakistan’s economy needs the IMF aid package to endure and avoid a sovereign default. When it comes to trading currencies, traders should remain watchful of possible economic reforms that may occur as the government seeks to restructure the economy.