The International Monetary Fund on Thursday welcomed Pakistan’s recent devaluation of its currency, calling it important for economic growth. “Continued exchange rate flexibility will be important to facilitate external adjustments to support exports and economic growth,” Harald Finger, who led an IMF staff mission’s visit to Islamabad, said in a media briefing at the end of his visit.
The rupee started weakening after the central bank withdrew its support for the currency last Friday. Since then, the rupee has fallen as low as 110 per dollar after opening at 105.55 on Friday. It has mostly traded at 104 to 105 per dollar since December 2015. The State Bank of Pakistan’s withdrawal of support was considered a devaluation measure because it is the biggest player in Pakistan’s thinly traded foreign exchange market and controls what is widely considered a managed float system.
Finger said allowing the currency to slide was a “good starting point” towards achieving growth this year. The IMF anticipates growth of 5.6 percent of GDP, he said. A statement from the mission issued later said Pakistan’s growth momentum has continued to be favourable, supported by improved conditions for security, energy supply, infrastructure investment and agriculture. It said continued exchange rate flexibility would be important in the period ahead. The State Bank of Pakistan has said a weaker rupee would help the economy grow and ease balance of payments pressures.
That pressure is largely caused by imports of machinery and other Chinese goods connected with a $57 billion infrastructure investment by China, part of its planned Belt and Road trade route stretching to Asia, Europe and beyond. Last month, Pakistan raised $2.5 billion from the sale of two U.S. dollar-denominated sukuk and Eurobond issues in New York, the largest foreign bond sales in its history.
With foreign reserves dwindling, some analysts say Pakistan may need an International Monetary Fund bailout to avert a balance of payments crisis similar to one it suffered in 2013, when it sought IMF help. However, the government say it will be able to manage its balance of payments. “We will take all possible measures to makes sure that we will not need any IMF bailout,” a finance ministry spokesman said on Thursday night.