ISLAMABAD A request- determined exchange rate and limited State Bank of Pakistan( SBP) interventions remain pivotal to absorb external shocks, maintain competitiveness, and rebuild transnational reserves, says the International Monetary Fund( IMF).
The Fund in its rearmost report noted that the IMF Staff encouraged the Pakistani authorities to strengthen adaptability, including by erecting reserve buffers, and limiting interventions in the foreign exchange request. Allowing lesser exchange rate inflexibility to address external pressures will help guard and ameliorate reserve buffers towards further prudent situations. Strong macroeconomic programs and structural reforms will help further make confidence in the rupee and resolve external imbalances.
The report further noted that commitment to maintaining a request- determined exchange rate remains essential to reduce external imbalances and start rebuilding reserves. A request- determined exchange rate remains a crucial tool to act as a shock absorber, especially in the environment of patient terms- of- trade shocks and low reserve buffers. Notwithstanding the recent deprecation, going forward the authorities should continue to allow exchange rate inflexibility and avoid suppressing any trend movement. Allowing a lesser part for exchange rate inflexibility to address external pressures will therefore help guard and ameliorate reserve buffers towards further prudent situations in line with programme targets
Staff emphasized that further elevation should be given to change rate inflexibility as a means to address the Balance of Payment( BOP) pressures rather than to executive and exchange measures. The authorities requested further time to exclude all remaining restrictions when BOP conditions permit by the new end of the programme at end- June 2023.
The reports notes SBP support for exchange rate inflexibility and acceptable foreign reserves as crucial shock absorbers, with FX interventions continuing to be limited to containing unruly request conditions. To support the balance of payments position and reduce foreign currency exoduses, the SBP assessed cash periphery conditions on the import of unnecessary particulars since late September 2021 which constitute an intensification of exchange restrictions, a MCP and import restrictions for balance of payment measures, but intends to exclude them when doable.
In addition, the SBP assessed a demand for previous blessing of initiating payments for significances of certain goods in late- May 2022. The authorities fete that this constitutes an exchange restriction and intend to exclude it as soon as request conditions allow, in discussion with the IMF.
Gross reserves declined from$17.6 billion at end- December 2021 to$9.8 billion at end- June 2022, original to about1.5 months of significances content, due to debt disbursements and frequent intervention by the SBP to alleviate exchange rate pressures, the report noted.
