The US Dollar continued to extend its gains on Wednesday as it closed above Rs 206 – a record high – amid growing demand for the currency and a dearth of inflows as talks with the International Monetary Fund (IMF) on the resumption of a $6 billion lending program continues. inconclusive.

The bullish march of the dollar against the rupee is now almost daily.

According to the Forex Association of Pakistan, the greenback gained 1.15 rupees from the previous day’s close of 205.25 rupees and reached 206.40 rupees at the close. FAP’s closing rate shows a slight difference from that of the State Bank of Pakistan, which posted a closing rate of Rs205.46.

Mettis Global Director Saad Bin Naseer describes the delay in resuming the IMF program and ongoing plenary sessions of the Financial Action Task Force (FATF) – which will decide whether Pakistan should remain on the body’s gray list for shortcomings in its anti-terrorism funding and anti-money laundering regimes – as the two main factors keeping the rupiah under pressure. The FATF Plenary is currently underway and will end on June 17.

The IMF loan facility, meanwhile, has been stalled since early April, with negotiations with the international lender still inconclusive, with the lender previously expressing reservations about fuel and energy subsidies being introduced. by the previous PTI government and now on the targets set by the new government for the coming year.

Pakistan had signed a 39-month $6 billion expanded financing facility with the IMF in July 2019, but the Fund halted disbursement of about $3 billion when the previous government reneged on commitments and announced grants. to fuel and energy.

While the PML-N-led coalition government has cut subsidies, its budget proposals regarding personal income tax have not elicited a very positive response from the IMF.

On Saturday, Finance Minister Miftah Ismail said the government had taxed the wealthy and tried to cut personal income tax for middle-income groups by raising the exemption cap to 1.2 million. rupees per year, but the IMF was not happy.

He said the measures were aimed at drawing more people into the tax net, but there could be changes over the next few days as budget measures are discussed in parliament.

IMF representative in Islamabad Esther Perez Ruiz said on Monday that further steps would be needed to align Pakistan’s budget for the year 2022-23 with the key objectives of its program with the IMF.

Today a Dawn A report quoting a source in Washington said the IMF “is also concerned about governance and corruption” and “would not like to be associated with a program perceived as open to corruption”.

These factors were seen as impediments to the IMF lending facility, which should ease pressure on the rupiah when it recovers.

According to Chairman of Forex Association of Pakistan, Malik Bostan, the delay in resuming the facility is causing the Rupee to devalue day by day.

Meanwhile, he said, Pakistan was still awaiting the renewal of a $2.3 billion loan from China, which kept pressure on the rupee.

Bostan believes the rupiah could remain under pressure until June 30, but added that the currency could see some stability if Pakistan is removed from the FATF gray list.

Rise in crude oil prices

Apart from the reasons outlined above, Naseer identified rising crude oil prices in the international market as another factor behind the dollar’s rise.

“Rising international crude oil prices (Brent at $121.5 a barrel and West Texas Intermediate at $119.3 a barrel) over the past session have further increased demand for dollars,” he said. Explain.

Meanwhile, Naseer added, exporters were holding “their earnings outside the country in order to take advantage of the exchange rate. The State Bank of Pakistan and relevant authorities must take timely action to force exporters to bring their export earnings back into the country to shore up foreign exchange reserves.”