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The State Bank of Pakistan (SBP) has already raised rates by 725 bps since January 2022. Image Credit: AFP

Islamabad: The Pakistani rupee slumped nearly 6 per cent against the US dollar on Thursday as the country struggles to unlock critical funding from the IMF amid an economic turmoil.

The rupee weakened to a new record low of 283 per dollar, according to Eikon data.

The currency has been sliding after delays in a deal between Pakistan and the International Monetary Fund, which parties have been negotiating since early last month.

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“A delay in IMF funding is creating uncertainty in the currency market,” said Mohammed Sohail of Topline Securities, a Karachi-based brokerage house.

The IMF funding is critical for the South Asian economy, which has been in turmoil, to unlock other bilateral and multilateral external financing.

Pakistan’s central bank foreign exchange reserves have fallen to hardly cover three weeks of imports.

A move to a market-based currency exchange rate regime is one of a list of actions the IMF wants Pakistan to complete to clear its 9th review, which if approved by its board would release a funding tranche of over $1 billion that has been delayed since late last year over a policy framework.

The pre-requisites by the lender are aimed at ensuring Pakistan shrinks its fiscal deficit ahead of its annual budget around June.

Pakistan has already taken most of the other prior actions, which included hikes in fuel and energy tariffs, the withdrawal of subsidies in export and power sectors, and generating more revenues through new taxation in a supplementary budget.

The fiscal adjustments demanded by any deal, however, are likely to further fuel record high inflation , which hit 31.5 per cent year-on-year in February, analysts say.

Bilateral and multilateral external financing commitments and raising policy rates are two other demands by the IMF which Pakistan is yet to meet.

Longtime ally China is the only country that has refinanced $700 million to Islamabad.