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The report highlights Pakistan’s struggle with soaring inflation, substantial debt obligations, a widening external financing gap, and diminishing foreign exchange reserves as key factors contributing to the rupee’s precarious position.
As of December 15, 2023, the local currency closed at 283.26 per dollar in the interbank market, reflecting a significant decline from its position at 226.43 on December 30, 2022.
The report grimly states, “Challenging times ahead for rupee,” attributing the economic downturn to near-zero growth, low productivity, and higher repayments amid limited avenues for raising foreign exchange.
Tresmark warns that the rupee’s weakness could exacerbate inflation, posing a formidable challenge for all stakeholders. Average inflation for the initial five months of the fiscal year stands at 28.62%, surpassing the central bank’s target of 22% for the entire fiscal year.
The report underscores the urgency for authorities to generate avenues for forex liquidity and implement administrative measures to curb unchecked price hikes, particularly in essential sectors like food and transport. Additionally, it suggests hoping for a reduction in oil prices to alleviate economic pressures.
Foreign analysts predict a potential dollar shortage, leading to the emergence of parallel currency markets where the dollar might be traded at rates higher than the official one. Such a scenario could undermine the government and central bank’s efforts to stabilize the rupee and curb illicit currency trade.
With Pakistan relying on short-term loans and assistance from international institutions, the economic challenges are expected to persist well into 2024. Despite the government’s efforts to address issues, political unrest and delays in international aid have contributed to fluctuations in the local currency throughout the year.
A recent survey indicates that financial market participants expect the rupee-dollar parity to range between 290—310 by June 2024. However, the State Bank of Pakistan (SBP) remains optimistic, anticipating increased financial inflows and improved forex reserves following the successful conclusion of the first review of the existing International Monetary Fund’s loan program. The IMF is poised to release the next tranche of approximately $700 million next month, contributing to Pakistan’s anticipated $4.5 billion inflow from bilateral and multilateral creditors during the current fiscal year.