‘Exchange rate stability doubtful in CY24’
‘Exchange rate stability doubtful in CY24’
Analysts and bankers anticipate pressure on the rupee-dollar exchange rate in the first quarter of calendar year 2024 due to increased debt repayments.
“With the conclusion of the nine-month $3bn Stand-By Arrangement with the IMF in March 2024, the dollar may reverse its downward trend owing to heightened debt servicing and a potential decrease in foreign exchange reserves amid sluggish inflows,” noted a senior banker.
Experts estimate a shortfall of $6bn needed to fulfill debt servicing obligations totaling $24bn for the entire FY24.
“The underlying fundamentals remain unchanged. Remittances and export earnings are expected to either decline or stagnate,” remarked S.S. Iqbal, a foreign exchange specialist. He also anticipated lackluster foreign direct investment.
The general elections on Feb 8 have injected uncertainty into the economic policy landscape, according to economists.
“Investors are likely to adopt a wait-and-see approach until the current political uncertainty subsides,” stated Atif Ahmed, an interbank currency dealer. He highlighted that foreign investors prefer stable environments for their investments.
The newly established Special Investment Facilitation Council (SIFC) has set an ambitious goal of attracting $100bn in foreign investment over the next five years. Analysts believe clarity on foreign investments under SIFC will emerge post-elections. Nonetheless, they view the arrival of Saudi oil company Aramco as a positive sign that could bolster confidence among other foreign investors.
Meanwhile, the rupee has seen 13 consecutive sessions of appreciation against the US dollar, reaching Rs281.86. However, these gains pale in comparison to the losses incurred in calendar year 2023.
On an annualized basis, the dollar gained Rs55.43 in the interbank market, with the PKR depreciating by 19.6% in CY2023.
During the current fiscal year, the rupee recovered Rs25 after hitting an all-time low of Rs307 on Sept 5.
While the open market witnessed higher volatility in 2023, the PKR stabilized at Rs283 after a Rs50 loss per dollar. The dollar spiked to Rs340 at one point but decreased to Rs275 due to crackdowns on smuggling and illegal currency trading, now hovering around Rs285.
Despite a significant $853m increase in foreign exchange reserves of the State Bank of Pakistan to $7.8bn, the country faces substantial repayments in January, likely reducing SBP reserves and signaling negatively for the exchange rate.
