Rupee to nosedive to Rs330 by FY26

Widening gap between dollar demand, supply will keep exerting pressure on rupee


Salman Siddiqui December 06, 2022
PHOTO: FILE

KARACHI:

The Pakistani rupee is projected to lose its value by over 20% over the next seven-months to Rs270 against the US dollar in the interbank market by June 30, the end of the current fiscal year, says a local research house.

Topline Research has anticipated that the currency will dive to Rs290 by the end of FY24 and will reach Rs320 by the end of FY25. A further plummet, to Rs 330 against the greenback, is projected for the end of fiscal year 2026.

The widening gap between rising demand for dollars compared to its low supply will cause the rupee to slide further against the greenback in the future.

Topline Research Director Research, Umair Naseer told The Express Tribune that, “Given the low foreign exchange reserves, it is likely that the official exchange rate will adjust close to the black-market rate (which is Rs240-250 per dollar). In our base case, we expect the dollar to reach Rs270 by June 2023 with average (value of rupee) at Rs241 in FY23.”

The Pakistani rupee fluctuated downwards 0.10% (or Rs.022) to reach Rs223.91 against the dollar in the interbank market on Monday.

The currency has continued to remain stable between the value of Rs220-225 for the past six to seven weeks.

Naseer underlined that “The domestic currency is going through a lot of uncertainty despite a 21% fall in the rupee versus the US dollar in 2022 so far.”

“Since 2019, Pakistan is following a market-based exchange rate regime. Even though the official exchange rate has remained in the range of Rs221-225 in the recent past, the black-market rate is trading at a premium of more than 10% at Rs240-250,” he said in a joint report with Advisor, Saad Hashemy.

“Since SBP tightened the rules for exchange companies, there is hardly any foreign currency supply in the market, except for a few currencies available for travellers at a premium of 3%. This re-emergence of the black market, we believe, cannot continue for long as it has started affecting dollar inflows, especially inward remittances,” they added.

To recall, the country’s export earnings and inflows of workers’ remittance sent home by overseas Pakistanis started reducing apparently due to the partially controlled value of the rupee in the interbank market. The inflows are believed to be coming into the country through illegal hawala-hundi operators due to the reorganisation of the black currency market. The government has been strongly advised to reschedule a big part of its foreign debt to avoid a default-like crisis in the long-run. In the period between FY23-FY25, Pakistan has to repay $73 billion to retire foreign debt.

The country’s foreign debt has doubled to $130 billion in the past seven-years till FY22. The exorbitant growth in debt to unsustainable levels has left very little room for the government to acquire more foreign debt to repay old dues.

The persistent delay in the International Monetary Fund’s (IMFs) Ninth review of the domestic economy under its $6.5 billion loan programme has also impacted the country’s ability to acquire fresh loans from multilateral and bilateral creditors. Many creditors are waiting for the IMF to release the agreed new loans for FY23 to inject any further funds into the country.

Published in The Express Tribune, December 6th, 2022.

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