Pakistan rupee falls as authorities ease controls to revive aid

Pakistan has abandoned its exchange rate controls as authorities try to revive an International Monetary Fund bailout, sending the rupee to record lows amid fears of a collapse in the battered economy.

Analysts say Pakistan’s central bank has imposed an unofficial exchange rate on exchanges in recent months that has artificially propped up the rupee and created a black market for the currency.

But traders said authorities lifted the restrictions on Thursday to meet the International Monetary Fund’s demand for exchange rate liberalization. The official bank rate ended the day down 10 percent at 255 rupees per dollar. The central bank said.

Pakistan’s economic crisis has worsened in recent days with the reduction of the country’s foreign reserves.

According to the Central Bank of Pakistan, shipping containers full of imports are piling up at Pakistani ports and buyers are unable to secure dollars to pay for them. Airlines associations and foreign companies have warned that they have been prevented from repatriating dollars because of capital controls put in place to protect dwindling foreign reserves. Factories such as textile manufacturers are closing or reducing their hours to conserve energy and resources, officials said.

These problems were exacerbated by Monday’s nationwide blackout that lasted more than 12 hours.

“Many industries are currently closed, and if these industries are not restarted soon, some of the losses will be permanent,” said Saqib Sharani, founder of Macroeconomic Insights in Islamabad.

Analysts warn that Pakistan’s economic situation is becoming unsustainable and that it is in danger of following Sri Lanka, where a lack of foreign reserves led to severe shortages of basic commodities and ultimately led to a default in May.

Islamabad’s foreign reserves have dwindled to less than $5 billion, less than a full month’s worth of imports, and Prime Minister Shahbaz Sharif’s government remains deadlocked with the International Monetary Fund over reviving a $7 billion aid package that was approved last year. It was stopped, it is at a dead end.

The International Monetary Fund suspended payments on the package in November, and Pakistani officials say it has made freeing the rupee a condition for unlocking its next loan.

Now every day counts. Abed Hasan, a former World Bank consultant, said what is the way out. Even if they get a billion [dollars] or two rolls. . . “The situation is so bad that at best it will be just a Band-Aid.”

Pakistan’s planning minister, Ehsan Iqbal, told the Financial Times that the country had cut imports “drastically” in an effort to preserve foreign currency. Analysts said this included restricting banks from opening letters of credit to importers, which led to a steel industry threatening to halt production this week.

The central bank announced on Monday that it will ease import restrictions to ease the supply of essential items such as food and fuel. Pakistan is still reeling from last year’s devastating floods that affected tens of millions of people and caused $30 billion worth of damage.

International lenders pledged more than $9 billion to help the country recover at a donor conference in Geneva this month, but details of how and when the money will arrive are still being negotiated.

The Sharif government has said it is committed to reviving the IMF contract to unlock the funds further. But the parties have remained deadlocked over the request of the International Monetary Fund to accept economic reforms such as increasing the subsidized price of energy by Pakistan.

Pakistan argues that implementing painful austerity measures while recovering from floods is impractical. “If we just follow the terms of the International Monetary Fund, as they want, there will be riots in the streets,” Iqbal said. “We need a confusing plan. . . . The economy and society cannot absorb the shock or the cost of an upcoming plan.”

The economic turmoil comes as Pakistan prepares for elections due this year. Sharif’s main challenger is former prime minister Imran Khan, who was ousted last April but remains highly popular. Both leaders blame the other for economic problems, and Khan is trying to force early elections.

“We need predictable power,” said Taimur Khan Jagra, a leader of the Pakistan Tehreek-e-Insaf party, which accuses the Sharif government of mismanagement of energy supplies. “It determines the quality of life.”

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