Pakistan and the International Monetary Fund (IMF) remain divided over exchange rate policy as talks on the country’s economic review continue, with the government backing rupee stability while the Fund is stressing a market-based exchange rate.
The IMF mission has emphasized maintaining a market-based exchange rate and keeping monetary policy sufficiently tight to contain inflation. The State Bank of Pakistan told the Fund that its current policy rate of 11.5 percent remains appropriate.
Pakistan’s economic team told the IMF that the economic outlook remains stable and expressed confidence in achieving the government’s 4 percent growth target despite risks from the ongoing Middle East war. Officials projected inflation at around 7.5 percent for the current fiscal year and said it could gradually decline after December.
The authorities also told the Fund that the rupee is expected to remain stable, with no immediate devaluation anticipated. Officials said exchange rate stability would help contain imported inflation. However, sources said differences remain over both exchange rate and monetary policy.
Pakistan expects inflation to remain between 7 percent and 8 percent during the fiscal year. Officials said inflation could reach 7.5 percent if international oil prices remain around $80 per barrel, while a rise to $100 per barrel could push inflation to around 8.2 percent.
The economic team projected a current account deficit of between $2.5 billion and $3 billion, while exports are expected to reach around $34 billion and remittances $45.5 billion. Remittances rose 14.7 percent during the first two months of the fiscal year, according to the briefing.
Imports are projected at between $69 billion and $70 billion, with officials saying higher foreign exchange reserves would help maintain external sector stability. Domestic food production could also reduce pressure on the import bill, while higher international rice prices are expected to generate an additional $300 million in export earnings.
The government maintained that the Middle East war would not have a significant additional impact on economic growth and reiterated its 4 percent growth target. However, it identified higher oil prices and global supply chain disruptions as key risks, with exchange rate policy, monetary policy, inflation and the external sector remaining central to the ongoing IMF review.
The post IMF Wants Market-Based Rupee, Higher SBP Rate appeared first on ProPakistani.