Pakistan Economy: Currency falling into the abyss

· When the country received IMF’s tranche of US$1.2bn at the start of this month, the second since the start of the year, it was hoped that currency would find solid ground against the US$. However, against expectations, the currency has continued to depreciate, sliding to PkR237.5/US$ at the time of writing.

. While the country’s borrowing needs for the year are fully met, the outlook beyond FY23 remains uncertain. As per the latest IMF document, the country’s gross borrowing needs over the next 5yr are expected to top US$180bn, meeting them or even rolling them over will be an uphill task.

· In the short term, the country’s borrowing needs may increase further as floods devastate standing crops in Sindh and lower Punjab. Resultantly, the country will need to import various food items to fulfill local demand and therefore the import bill driven by food imports, will bloat further.

· With exports likely to remain lackluster, the onus falls upon inward remittances and FDI to balance the gap between inflows and outflows. However, the remittance inflow, which has picked up of late, has remained largely disappointing. The same can be said for RDA inflows which have also started to dry up over the past few months.

· The need of the hour is to increase monthly remittances and RDA inflows while stamping out currency smuggling from the country. Our models currently build a yearly depreciation of 7% – 8% over the next couple of years. However, we will be looking to revise our depreciation estimates in the coming days.

Courtesy – AKD Research

Posted in News Update.

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