Pakistan’s Rupee Falls to Record Low as Government Seeks Release of IMF Loan

A stockbroker speaks on a phone while monitoring the share prices during a trading session at the Pakistan Stock Exchange (PSX) in Karachi, on May 16, 2022. (Tabassum/AFP via Getty Images)

Pakistan’s currency plunged to an all-time low against the U.S. dollar on Thursday after the government lifted its exchange cap in a move to revive a bailout package from the International Monetary Fund (IMF).

The rupee closed at 255.4 against the dollar on Thursday, down from the 230.89 rupees the previous day, according to the State Bank of Pakistan, marking the country’s highest single-day decline in decades.

The decline came after the Exchange Companies Association of Pakistan (ECAP) removed the cap on the U.S. dollar, citing the need to tackle the surging “artificial” demand for the greenback in the market.

The move toward a market-based exchange rate should please the IMF, because that is one of the conditions that the multilateral lender has set before it agrees to unlock a stalled bailout program for Pakistan.

The IMF said Thursday that it would send a mission to Pakistan next week to discuss reviving the bailout package, according to local media.

IMF resident representative Esther Perez said the mission will focus on “the policies to restore domestic and external sustainability, including to strengthen the fiscal position with durable and high-quality measures while supporting the vulnerable and those affected by the floods.”

Pakistan entered the $6 billion loan program with the IMF in 2019. Another $1 billion was added to it last year to help the country recover from the devastating floods, but the IMF then suspended disbursements in November due to Pakistan’s failure to make progress on fiscal consolidation.

Pakistani Prime Minister Shehbaz Sharif addresses the 77th session of the United Nations General Assembly at UN headquarters in New York City, on Sept. 23, 2022. (Bryan R. Smith/AFP via Getty Images)

Pakistan is facing one of its worst economic crises amid dwindling foreign reserves and a depreciating currency.

Pakistani Prime Minister Shehbaz Sharif said Tuesday that his government is willing to comply with the IMF conditions to revive the bailout package that Pakistan desperately needs to stabilize its economy.

“We have given the IMF a clear message that we want to complete the ninth review. We are ready and want to sit down regarding your conditions so that it can be concluded and Pakistan can move forward,” Sharif was quoted as saying by Dawn.

Pakistan’s central bank also raised its key interest rate by 100 basis points, to 17 percent this week—the highest level since 1997—to anchor inflation expectations and achieve price stability to support sustainable economic growth.

The Monetary Policy Committee (MPC) said that anchoring inflation expectations was critical to achieving the inflation target of 5–7 percent by December 2024 and requires coordinated monetary and fiscal policy efforts.

“The committee noted that inflationary pressures are persisting and continue to be broad-based. If these remain unlocked, they could feed into higher inflation expectations over a longer-than-anticipated period,” the MPC said in a statement [pdf] on Monday.

According to the bank, the country’s headline inflation rose to 24.5 percent in December 2022 from 23.8 percent in the previous month, driven by an increase in food and core goods prices.

Reuters contributed to this report.