Pakistan rupee hits all-time low days after IMF bailout deal

Money dealers counts Pakistani rupees (R) and US dollars at a currency exchange in Islamabad
Updated 15 May 2019
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Pakistan rupee hits all-time low days after IMF bailout deal

  • Currency falls to record 146.25 against the US dollar
  • PM reportedly said the fund has not demanded further devaluation

KARACHI: The Pakistani currency on Wednesday hit an all-time low of 146.25 rupees against the US dollar amid looming fears of further devaluation, just days after Pakistan signed a bailout deal with the International Monetary Fund.
The $6 billion bailout package comes with strict reform conditions, including measures to maintain a free-floating exchange rate.
After reaching the record low, the rupee closed at 144 against the dollar at the end of the trading day.
Malik Bostan, president of the Forex Association of Pakistan, said he met with Prime Minister Imran Khan on Wednesday, who assured him that the IMF had not demanded further devaluation of the rupee.
“The IMF has only demanded an exchange rate based on demand and supply,” Bostan told Arab News. 
“After the meeting with PM, dollar rates have started cooling down and will further stabilize. We have requested the government to impose a ban on rumors regarding the rupee that are hurting market sentiments. Predictions about the dollar (in) the media should be stopped.”
Bostan said that Khan had consented to setting up a committee comprising officials from the State Bank of Pakistan, exchange companies and the Finance Ministry to resolve the issues faced by exchange companies.
“We have informed him we can increase inflow of greenback from $5-6 billion to $7-8 billion provided agreements are facilitated with around 500 international companies operating in Pakistan,” Bostan said, adding that the PM had agreed to devise a mechanism to discourage the outflow of dollars from Pakistan by encouraging investment in the country.
The International Monetary Fund and Pakistan reached a “staff level agreement” on Sunday for a $6 billion bailout package following months of negotiations on a deal that aims to bolster Pakistan’s flagging economy and perilously low foreign exchange reserves.
Talks with the IMF began soon after Khan’s government was appointed last August but a package has been held up by differences over the pace and scale of reforms that Pakistan would be required to undertake.
The IMF has pressed Pakistan to improve tax revenue collection, bolster foreign currency reserves and narrow a current account deficit expected to top 5 percent of gross domestic product this year. The Fund has also pushed Pakistan to embrace a flexible rupee policy. Pakistani officials fear these steps will further hurt economic growth, cause of spike in the key interest rate and push the Pakistani rupee further down.
“A market-determined exchange rate will help the functioning of the financial sector and contribute to a better resource allocation in the economy,” the IMF said in a statement issued after the agreement.
“The rumors of further devaluation of (the) rupee against dollar have squeezed the supply of the dollar and increased demand,” said Zafar Paracha, general secretary of the Exchange Companies Association of Pakistan. “Those holding dollars are not willing to sell, anticipating gains on devaluation.”


British Steel collapses, threatening thousands of jobs

Updated 23 min 45 sec ago
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British Steel collapses, threatening thousands of jobs

LONDON: British Steel Ltd. has been ordered into liquidation as it struggles with industry-wide troubles and Brexit, threatening 5,000 workers and another 20,000 jobs in the supply chain.
The company had asked for a package of support to tackle issues related to Britain’s pending departure from the European Union. Talks with the government failed to secure a bailout, and the Insolvency Service announced the liquidation on Wednesday.
“The immediate priority following my appointment as liquidator of British Steel is to continue safe operation of the site,” said David Chapman, the official receiver, referring to the Scunthorpe plant in northeast England.
The company will continue to trade and supply its customers while Chapman considers options for the business. A team from financial firm EY will work with the receiver and all parties to “secure a solution.”
“To this end they have commenced a sale process to identify a purchaser for the businesses,” EY said in a statement.
The government said it had done all it could for the company, including providing a 120 million pound ($152 million) bridging facility to help meet emission trading compliance costs. Going further would not be lawful as it could be considered illegal state aid, Business Secretary Greg Clark said.
“I have been advised that it would be unlawful to provide a guarantee or loan on the terms of any proposals that the company or any other party has made,” he said.
Unions had called for the government to nationalize the business, but the government demurred.
The opposition Labour Party’s deputy leader, Tom Watson described the news as “devastating.”
“It is testament to the government’s industrial policy vacuum, and the farce of its failed Brexit,” he said in a tweet.
The crisis underscores the anxieties of British manufacturers, who have been demanding clarity around plans for Britain’s departure from the EU. Longstanding issues such as uncompetitive electricity prices also continue to deter investment in UK manufacturing, said Gareth Stace, the director-general of UK Steel, the trade association of the industry.
“Many of our challenges are far from unique to steel — the whole manufacturing sector is crying out for certainty over Brexit,” Stace said. “Unable to decipher the trading relationship the UK will have with its biggest market in just five months’ time, planning and decision making has become nightmarish in its complexity.”
Greybull Capital, which bought British Steel in 2016 for a nominal sum, said turning around the company was always going to be a challenge. It praised the trade union and management team, but said Brexit-related issues proved to be insurmountable.
“We are grateful to all those who supported British Steel on the attempted journey to resurrect this vital part of British industry,” it said in a statement.