The Pakistani rupee experienced a significant one-day drop of 9.6% against the US dollar, marking its largest decline in over two decades, according to central bank data. This slump follows the removal of the exchange rate cap by foreign exchange companies, which was a key demand of the International Monetary Fund (IMF) as part of Pakistan’s economic reform program. The official value of the currency closed at 255.4 rupees against the dollar, compared to 230.9 rupees the previous day. The sharp depreciation comes as Pakistan seeks external financing to address its acute balance of payments crisis, with its foreign exchange reserves dwindling to just $3.68 billion, equivalent to less than three weeks’ worth of import cover.
In response to Pakistan’s economic challenges, the IMF has announced its intention to send a mission to the country at the end of January to discuss the possibility of resuming the bailout program. Pakistan had secured a $6 billion IMF bailout in 2019, which was supplemented with an additional $1 billion last year to address the aftermath of devastating floods. However, disbursements were suspended in November due to Pakistan’s limited progress on fiscal consolidation. The significant devaluation of the rupee may serve as a catalyst for the IMF to reconsider its lending stance, as Pakistan aims to stabilize its economy and secure much-needed external funding.
