[Dawn] When Pakistain’s dollar reserves fell below $5 billion in December, and its credit default risk had reportedly become too high for analysts to ignore the possibility of an imminent default, the central bank made a policy decision to allow the opening of import letter of credits (LC) in a staggered manner to ensure spreading of the dollar reserve over a longer period of importing time.
The idea was to allow the government some diplomatic time to knock on the doors of friendly countries and multilateral organizations, including the International Monetary Fund (IMF). The Fund had dilly-dallied on the ninth review to force monetary authorities in Pakistain to take the first steps towards a few baseline reforms, including the relegation of the dollar to the markets. Markets that the central bank and the government regards as ripe with imperfections.
The rupee was finally devalued last week which automatically implied that it was left to a market that had the propensity to sell it to gain dollars. This provided IMF with the confidence to schedule the ninth review, which is now ongoing in Islamabad. It is likely that the IMF’s review will be completed, and default, as was predicted by some and wished by a few others, didn’t happen. |