KARACHI: The Pakistani rupee recovered 60 paisas to reach Rs198.46 on Tuesday, as positive sentiments prevailed in the market after the government met one of the conditions for the revival of the International Monetary Fund (IMF) programme.

The local unit recorded an increase of 60 paisas to close at Rs198.46 to the dollar from Monday’s closing of Rs199.06 in the interbank foreign exchange market. The rupee recorded the historic low of Rs202.01 on May 26, 2022.

The dealers said that the latest recovery in the value of the rupee can be attributed to the positive sentiments in the market due to the recent measure of cutting subsidies on the prices of fuel, a move likely to help conclude the government’s dialogue with the IMF on a positive note.

The government’s measure to remove the subsidy on the prices of fuel is expected to positively impact Pakistan’s negotiation with the IMF for the revival and extension of the Extended Fund Facility (EFF) programme, they added.

The disbursement of the next tranche from the IMF will boost the country’s capacity to make international payments as the successful completion of the talks will likely pave the way to attract funds from other multilateral and bilateral lenders.

However, the continuous decline in the foreign exchange reserves of the country pose a significant risk to the stability in the value of rupee.

The country’s total liquid foreign exchange reserves declined $11 million to $16.150 billion during the week ended May 20, 2022, compared with $16.161 billion as of May 13, 2022.

The State Bank of Pakistan’s (SBP) reserves fell $75 million to $10.089 billion due to external debt repayment. However, the net foreign reserves held by the commercial banks were up $63 million to $6.061 billion.

The widening current account deficit is another threat to the stability of the local unit. Pakistan’s trade deficit showed a sharp growth to $3.64 billion in March 2022, registering an increase of 12 per cent over the same month of the last fiscal.

The total trade deficit escalated to $35.52 billion in the first nine months (July-March) period of the current fiscal year against $20.8 billion in the same period last fiscal year.

The local currency remained under pressure since the start of the current fiscal year. The rupee lost Rs40.92 or 25.97 per cent from Rs157.54 to dollar on June 30, 2021 to the current level of Rs198.46.

At the open market, the buying and selling of the dollar was recorded at Rs197.7 and Rs199.6 at 5:45pm PST.