- The rupee could depreciate by another 5% to 10% next year.
- It closed at 283.26 to the dollar on the interbank market on December 15.
- “Tough times ahead for the rupee,” the report said.
KARACHI: The rupee may extend its decline in 2024 as the country faces economic challenges such as rising inflation, huge debt obligations, a widening external financing gap and dwindling foreign exchange reserves, a report from TrisMark, a financial station, said on Saturday.
The report said that the rupee, which has fallen by 20% against the dollar this year, may fall by another 5% to 10% next year, as Pakistan suffers from near-zero growth, low productivity, and rising payments with few ways to collect foreign currency.
On December 15, 2023, the local currency closed at 283.26 to the dollar on the interbank market. It ended on December 30, 2022, at 226.43.
“Tough times lie ahead for the rupee,” the report said. “In the current scenario, the economy is facing a slowdown in imports (opening of new letters of credit), and a decline in both exports and remittances, creating a strangling effect that is exacerbated by persistent inflation.”
However, Tresmark warned that currency weakness could fuel another round of inflation, posing a potential burden on all stakeholders.
Average inflation for the first five months of the fiscal year was 28.62%, well above the central bank’s target of 22% for the current fiscal year.
“If the BoE’s target of 22% for the full year is taken into account, this means average inflation for the next seven months will be 17%,” Tresmark said. “This looks highly unlikely as the average consensus for the remaining year is 22.50% – which is 5% above the Bank of England’s forecast.”
The report said that the two most important things that the authorities must do are to do their best. “Finding ways for foreign exchange liquidity, perhaps the visit of the Army Commander will be fruitful in this case. Use administrative measures to curb uncontrolled price hikes including food, transportation, etc. Perhaps we will pray that the oil price falls to $60 per barrel.” .
Foreign analysts and research centers reported that Pakistan will witness a shortage of dollars, which could lead to the formation of parallel currency markets where dollars are sold at a higher price than the official rate. The government and central bank, which work to stop illicit currency trading and stabilize the rupee, will lose their credibility as a result.
Pakistan relies on short-term loans and aid from the International Monetary Fund and other lenders to prevent default, so its economic problems may continue until 2024.
This year, there has been a lot of fluctuations in the local currency. Delays in the IMF bailout increased default risks in Pakistan, and political turmoil following the imprisonment of former Prime Minister Imran Khan sent the rupee falling to record lows, with the rupee trading at 290 rupees to the dollar in May. .
After the country’s interim government took office in August, there was intense pressure on the rupee against the dollar. On September 5, the rupee fell to a record high of 307.1 against the dollar. However, since the country’s financial regulators and security agencies started cracking down on illegal foreign exchange trading in gray and black markets, the rupee has rebounded sharply. The rupee was the best-performing currency globally in September.
A majority of financial market participants expect the rupee-dollar parity to be between 290-310 by June 2024, a survey conducted by Topline Securities last week showed.
However, the State Bank of Pakistan expects financial flows and foreign exchange reserve position to increase with the successful conclusion of the first review of the current IMF loan program.
The IMF is scheduled to release the next tranche of about $700 million from the current loan program for Pakistan once it receives approval from its Executive Board next month.
During the current fiscal year, Pakistan also expects to receive $4.5 billion from bilateral and multilateral creditors.