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Pakistani rupee steady after IMF loan approval
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Pakistani rupee steady after IMF loan approval
Reuters - 1 hour 11 minutes ago
By Sahar Ahmed
KARACHI, Nov 26 - The Pakistani rupee ended flat on Wednesday and dealers said they expected it to stay stable in the short-term following the approval of a $7.6 billion loan from the International Monetary Fund .
Pakistan will get immediate access to $3.1 billion under the 23-month IMF facility, with the rest phased in subject to quarterly reviews, the fund said.
The package means Pakistan will avert a balance of payment crisis and be able to cover an international sovereign bond maturing in February.
The rupee <PKR=> was quoted closing at 78.76/86 to the dollar compared with Tuesday's close of 78.78/82.
"In the short-run the rupee will remain firm due to the IMF approval," said a currency dealer in Karachi. Dealers said there had been some import payments on Wednesday.
The rupee has recovered 7.2 percent from a low of 84.40 on Oct. 17 but has lost 21.8 percent since the beginning of the year. Total foreign exchange reserves have dwindled to the equivalent of nine weeks of imports.
The IMF said the success of the programme could be affected by four issues: security, implementation uncertainties, a more severe than anticipated economic slowdown in in trading partners and lower than expected private capital flows.
The IMF said there was an urgent need for Pakistan to mobilise donor support to strengthen resilience and help finance an expanded a social safety net and development spending.
Pakistan has tried to drum up support from donors, who banded together in a Friends of Pakistan conference this month. Senior IMF adviser Juan Carlos di Tata said on Tuesday the conference was mainly an organisational meeting and there were no pledges.
"But it was agreed during the meeting that there was going to be another meeting in Islamabad probably in early January at the ministerial level and I guess the issue of donor support will be part of the topics to be discussed," said Tata.
STOCKS IN LIMBO
Tata said a cut in defence spending had not been discussed in the IMF's negotiations with the government.
The rupee could face pressure in the medium-term if the current account deficit was not reduced, but lower oil prices would go a long way to help, analysts said.
"We do not forsee further strenghtening," said Mushtaq Khan, an economist at Citibank in London.
"The need to build up foreign reserves and the external deficit could see the rupee start to gradually weaken from its current rate of 78.40 per dollar to 81-82 by the end of June 2009."
The IMF said on Tuesday Pakistan's gross external financing requirement for the 2008/09 fiscal year was $13.4 billion out of which the IMF will provide $4.7 billion.
The IMF also said the fiscal deficit would be trimmed to 4.2 percent of GDP in 2008/2009 and 3.3 percent in 2009/2010, compared with 7.4 percent in the fiscal year to June 2008.
It also said the central bank may tighten monetary policy to control inflation running at 25 percent. The fund has targeted a reduction in inflation to 6 percent by mid-2010.
The IMF agreement has had no impact on stocks which have been in limbo since a floor was placed on the main index in August after a fall of nearly 35 percent for the year.
Trading has dried up and on Wednesday the Karachi Stock Exchange benchmark 100-share index <.KSE> ended flat at 9,187.10 points, 43 points above the floor. No shares were traded.
Dealers anticipate a sharp drop when the floor is removed and say stocks have been trading 30 to 40 percent lower in off-market transactions. Exchange authorities have not said when the floor will be removed.
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