IMF Conditions Lead to USD Being 67 Rupees Overvalued Against Pakistani Rupee

Islamabad: Due to the conditions imposed by the International Monetary Fund (IMF), the Pakistani rupee has been trading at an overvalued exchange rate compared to the US dollar. According to tax advisory firm Tola Associates, this discrepancy is the result of maintaining a market-based exchange rate over the past two years, which has caused the dollar to be priced 67 rupees higher than its actual value.
The firm notes that, had it not been for the IMF’s insistence, the dollar’s value would have been around PKR 211.50 by the end of October. According to a report by Tribune, keeping the dollar’s value higher than its real worth has contributed to inflation and an increase in the interest payments on Pakistan’s debt.
The central bank, which is responsible for managing the exchange rate, has maintained that the current value of the rupee is in line with market expectations. However, Tola Associates argues that the elevated value of the dollar over the past three years has had a negative impact on Pakistan’s economy.
The advisory firm claims that adjusting the exchange rate to reflect the estimated real average value of PKR 211.50 could bring significant economic benefits. They pointed out that, due to IMF demands, the rupee traded near 238 to the dollar in September 2022. However, within the first week of Ishaq Dar’s appointment as finance minister, the dollar depreciated to 218 rupees without any significant fundamental economic changes.
Last month, Deputy Prime Minister Ishaq Dar stated that, based on economic fundamentals, the value of the rupee should not exceed PKR 240 per dollar. He also expressed opposition to a flexible exchange rate system, arguing that it has harmed both the economy and the common people.
According to Tola Associates, if the rupee had been trading closer to its estimated three-year average of 211.5, inflation for the July-October period could have decreased from an average of 8.7% to 4.67%.