The rupee dropped to a record low against the dollar on Thursday in the interbank market after two hours of continuous gains as "optimism surrounding the government and International Monetary Fund (IMF) negotiations pushed back."

Today's intraday exchange saw the rupee lose Rs1.17, and by 1 pm, it was still worth Rs272.17.The rupee's closing value on Wednesday was Rs268.83.

The International Monetary Fund (IMFrejection )'s of the government's circular debt management plan had already eroded market trust (CDMP).

According to Ali, these revelations sparked concerns about the potential for a snag in the ongoing talks between the government and the IMF.

An IMF team is now in Pakistan holding discussions on the ninth review; these discussions are scheduled to last until February 9 and are anticipated to result in a staff-level agreement between the two parties.

Circular debt management approach rejected by the fund

The IMF rejected the CDMP that the government filed and asked the authorities to raise the price of energy by Rs12.50 per unit in order to keep the additional subsidy's total value for the current fiscal year at Rs335 billion.

During the second day of technical discussions, the Washington-based lender described the modified CDMP as "unrealistic," which is based on a number of false assumptions. In order to reduce the losses in the financial electrical sector, the government would need to make more changes to its suggested course of action.

The IMF and the Finance Ministry will work out a budgetary shortfall, and different additional revenue measures will subsequently be codified in the future mini-budget.We can anticipate the monster of cyclical debt.

Senior IMF officials heard the government's amended plan on Wednesday. The plan reveals that even though the government increased the price of electricity by as much as Rs7 per unit through quarterly tariff adjustments in the first two quarters of 2023 and by as little as Rs1.64 for the third quarter from June to August, the government still required an additional Rs675 billion in subsidies.

According to sources who spoke to the publication, "the IMF has objected to the certain basis of the revised CDMP and asks the government to raise the tariff in the range of Rs11 to Rs12.50 per unit, in order to reduce the requirement of additional subsidy to half from its existing levels of Rs675 billion for the current fiscal year."

The IMF questioned the government's estimation of its higher subsidy requirement of Rs675 billion for the current fiscal year. The government undervalued the exchange rate while determining the modified CDMP, therefore the plan would change with the current exchange rate.

According to the report, the newly developed debt management strategy intends to maintain the average losses for DISCOs for the current fiscal year at 16.27%.

The government has set a target to collect Fuel Price Adjustment (FPA) payments that were delayed, which is in contrast to projections of Rs65 billion given on the eve of the previous summer.

While the GST and other taxes on a collection basis will assist recover Rs18 billion in the markup savings due to IPPs stock payment,