Rupee expected to remain stable as IMF approves $1bn loan tranche

KARACHI: The Pakistani rupee remained stable despite cross-border strikes with India, and it is likely to continue this stability after the approval of a loan disbursement of approximately $1 billion from the International Monetary Fund for Pakistan.

Tensions between the two nuclear-armed neighbours escalated on Wednesday when India conducted strikes on multiple sites in Pakistan and Azad Jammu and Kashmir following an attack in Indian-occupied Kashmir last month. Since then, the two countries have exchanged cross-border fire and shelling, with both sides employing drones and missiles in each other’s airspace. However, in a dramatic turn of events, both nations agreed to an immediate ceasefire on Saturday.

Meanwhile, the rupee-dollar dynamic remained relatively stable, with the local currency weakening by 48 paisas against the US dollar. The rupee closed at 281.22 against the dollar on Monday but lost ground, finishing at 281.7 on Friday. The country’s equities were volatile throughout the week, with the KSE-100 index shedding 6,939 points to close at 107,175 points.

“The dollar has been inching up by 10-15 paisas [against the rupee] daily for the past few days,” said Tresmark in a client note. “This steady rise has made exporters cautious, leading to a pause in export proceeds and a slowdown in new orders. However, banks report ample dollar liquidity, and if calm returns, flows may resume in the next two weeks,” it added.

The report said that the approval of a $1 billion loan tranche to Pakistan by the IMF’s executive board on Friday reflects the ongoing support from the global lender and provides the government with some breathing space to address external pressures. This loan is part of a broader $7 billion programme agreed last year. It will help bolster Pakistan's foreign exchange reserves and provide a buffer for the economy, aiding in maintaining the rupee's stability against the dollar. With this approval, total disbursements under the 37-month Extended Fund Facility have reached $2.1 billion.

The IMF also approved a fresh $1.4 billion loan to Pakistan under its climate resilience fund.

Despite a challenging global backdrop, Pakistan has delivered encouraging macroeconomic outcomes, the IMF said in a statement.

According to the IMF, the government posted a primary surplus of 2.0 per cent of GDP during the first half of fiscal year 2025, aligned with the full-year target of 2.1 per cent. Inflation dropped to 0.3 per cent in April, while the State Bank of Pakistan (SBP) reduced the policy rate by 1,100 basis points (bps) since June, reflecting improved price stability and easing financial conditions, the IMF said.

“Gross reserves stood at $10.3 billion at end-April, up from $9.4 billion in August 2024, and are projected to reach $13.9 billion by end-June 2025 and continue to be rebuilt over the medium term,” it said.