The dollar in the interbank market on Friday was trading at, what is now its highest ever value against Rupee. The week’s trading saw the rupee recovering against the greenbacks. But with increased pressure on Pakistan’s falling reserves, the Rupee failed to make a full recovery. Rather, within days, it nosedived further, crossing the 270 barrier and eventually the 275.
On Thursday, the interbank trading closed at Rs. 271.36/USD. The SBP’s foreign exchange reserves were also recorded at a record low of $3.09 billion on Thursday, after a decrease of $592 million during the last week.
Talking to the apex committee on Friday, the Prime Minister said that the IMF was giving Pakistan a hard time over unlocking $1 billion, in the current unimaginable circumstances of Pakistan. The Premier’s statement is said to have stirred a negative sentiment amongst the market.
According to media reports, the talks that started with the IMF at the start of this week, after 4 days, are still nowhere near their conclusion. Earlier this week, the IMF asked for political consensus on its prior conditions, introducing a “charter” of sorts.
In addition to that, in the meeting conducted on Friday, the fund has shown discontentment with Pakistan’s debt servicing ability. The fund has also relayed a need to increase the prevalent sales tax to 18% to bridge the tax-to-gdp ratio.
The IMF mission plans to introduce fiscal reforms in the country and the government has also shown willingness to do so.
However, under record-high inflation, which is expected to go north of 30% in the months to come, a fiscal tightening might prove to be fatal. Not just for the lower income groups of the country, but also the political journey of the ruling party(ies).