KARACHI: Pakistani markets were moribund on Wednesday, with the financial community awaiting word on whether the government was going to seek an IMF loan to avoid a balance of payments crisis.
The rupee closed marginally weaker at 81.30/50 to the dollar compared with Tuesday’s close of 81.25/75. It has lost 24.2 per cent against the dollar this year.
Dealers said the outlook was bleak because of external and fiscal deficits and inflation running close to 25 per cent. The rupee set a record low of 84.40 on Friday but suspected central bank intervention helped it recover. Import payments were behind Wednesday’s weakness.
“Fundamentals have not changed so it’s unlikely the rupee will stay firm,” said a currency trader. The central bank’s foreign currency reserves represent about six weeks cover for import payments.
IMF and Pakistani officials are meeting in Dubai for an annual economic review amid speculation that the government is poised to ask for a support package. It earlier ruled out going to the IMF in the hope other multilateral lenders and friendly governments would come through with loans.
Mohsin Khan, director of the Middle East and Central Asia department at the IMF, has encouraged Pakistan to request IMF funding but said on Wednesday that Pakistan had yet to make a request.
“They simply haven’t asked,” Khan said on the sidelines of a Middle East Economic Digest conference in Dubai. Asked if the IMF would not let Pakistan fail, he said: “That’s absolutely true.”
Pakistan needs $10 billion to $15 billion of support from foreign lenders to avert a balance of payments crisis and undertake a two-year adjustment, Shaukat Tarin, the country’s top economic adviser, said on Monday.
Zubair Iqbal, a former IMF director told the BBC on Tuesday that Pakistan was in a “dangerous position” and “needs to come to terms with reality”. He said there may be a need for further monetary tightening and the government must curb spending. Dealers said the rupee could come under more pressure when a protective floor placed on the main stock market index was removed on October 27, because of possible foreign selling and portfolio outflows. The floor was imposed in August.
According to a report by JP Morgan, foreigners own about $2 billion of stocks at the Karachi Stock Exchange and “concerns over the currency could force them to liquidate their positions even if domestic market stabilisation efforts are announced”.
An exchange official said a KSE delegation was in Islamabad on Wednesday to meet the SECP to discuss the possibility of a fund to support the market when the floor was removed.
Source: The News, 23/10/2008