Budget estimates being set at Rs295 per dollar

Govt expects local currency to devalue in next fiscal year

ISLAMABAD:

The federal government has established the value of the US dollar at Rs295 while crafting the budget estimates for the fiscal year 2024-25, anticipating a devaluation of the local currency.
Sources within the finance ministry have indicated that the dollar's value is projected to rise by Rs10 in the upcoming financial year. For the current financial year, the revised dollar rate is estimated at Rs285.

These sources have cautioned that the inflation rate is also likely to escalate in the next fiscal year due to the anticipated devaluation of the local currency. However, they have also pointed out a potential silver lining: the devaluation could stimulate demand for Pakistani products in the global market, consequently increasing foreign exchange earnings.

Nevertheless, the depreciation of the rupee will have ripple effects, impacting foreign currency reserves, prices of petroleum products, and development spending. It may lead to a reduction in the trade deficit, as the cost of imported goods becomes more expensive, thereby dampening demand.

It's crucial to establish the dollar rate accurately to gauge foreign aid, payments, and loans in rupees effectively.

Read Federal budget set for May 31 approval

A month before an expected inflationary storm because of the International Monetary Fund (IMF)’s proposal to impose an 18% general sales tax on almost all products, the federal government has projected that the inflation rate may slow down to a two-year low of 14.5%.

The acceptance of the IMF’s recommendations would mean that prices of goods -- from milk to medicines and petrol -- would skyrocket from July 1, creating a situation that would keep the inflation rate persistently high in the next fiscal year as well.

The IMF’s recommendation suggests that even staple food items including wheat and rice as well as essential education should also be taxed, but at a single 10% GST rate.

Experts predict that the rupee is expected to remain stable in the near-term, but an increase in imports is likely to put pressure on the currency, causing a depreciation starting in July.

They believe if the economy grows, the pressure of imports will rise, exerting pressure on the external front.

The experts agree that the rupee is marginally overvalued. They say the local currency will be way lower had there been no import and capital restrictions.

The IMF’s report on currency also implies that the Pakistani rupee is overvalued.