The International Monetary Fund on Thursday welcomed Pakistan's recent rupee devaluation, describing it as important for favourable economic growth momentum. "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 Pakistani currency started weakening after State Bank of Pakistan withdrew its support to the rupee, which has fallen to as low as 110 per dollar after opening at 105.55 since Friday. The rupee has mostly traded in a tight range of 104-105 per dollar since December 2015.
The State Bank of Pakistan's (SBP) withdrawal of its support for the rupee was seen as a devaluation measure as the central bank is the biggest player in the thinly traded local 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.
The balance of payments pressure is largely due to 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. Finger, the IMF mission head, said Pakistan had not requested any bailout package so far.
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