The Institute of International Finance expects the rupee to weaken by more than six percent against the US dollar and UAE dirham in 2024-25.
A crackdown on illegal currency players launched by the Pakistani military to curb dollar smuggling has virtually eliminated black market rates, a US think tank said.
A strong military crackdown on illegal currency markets that began in September has virtually eliminated black market rates, helping capital inflows and remittances. Finally, the passage of the State-Owned Enterprises (SOE) Law should enable Pakistan to privatize distressed SOEs, reducing financial costs as well as providing another avenue for financing. said in a note.
Due to high demand for dollar, smuggling of foreign currencies and political and economic uncertainty, the South Asian currency witnessed wide volatility and weakness. Last year, the difference between the official and open market Pakistani rupee widened due to dollar smuggling. After the crackdown, the gap began to narrow as the supply of dollars increased, lowering official and open market rates.
In 2023, the rupee fell from Dh226 at the start of the year to Dh282 at the end of December. It touched an all-time low of 307.5 in the first week of September, prompting authorities to launch a crackdown on currency smuggling.
Rupee is set to weaken in 2024-25.
The IIF expects the rupee to weaken by more than 6 percent against the US dollar and UAE dirham in 2024-25 due to higher demand for the greenback.
Such modest growth is dampened by the lack of foreign exchange and high interest rates that continue to affect the manufacturing and service sectors. Inflation is expected to gradually average 24 percent in the current fiscal year and 24 percent in the 2024-25 fiscal year." It will fall to 14 percent. While food and fuel inflation will moderate this year, we expect rupee depreciation, energy price hikes, and tax hikes to add to inflation, partly on the back of falling commodity prices. will cover the benefits,” he said.
Bilateral financing and deposits
IIF's Chief Economist expects the State Bank of Pakistan (SBP) to leave interest rates unchanged for the remainder of the fiscal year.
Year-on-year, high-frequency data has shown a continued decline in imports, largely due to poor domestic demand. However, we expect this trend to reverse in the second half of 2024, which Driven by the removal of import restrictions, depreciation of the rupee, and increased domestic demand. Imports receipts, lower remittances, and higher interest payments will outweigh the solid receipts in goods exports and we see the current account deficit widening to -1.0 percent of GDP."
It expects IMF and multilateral program loans, bilateral financing, and reserves from Saudi Arabia, the United Arab Emirates and China to help cover the deficit, resulting in reserves of 4.5% by the end of June this year. billion will increase to $10.1 billion, which is equal to 1.7. Months of import coverage.
0 Comments