Dubai: The Pakistan rupee has dropped under 57 to a dirham mark, an indication that the currency is feeling some lift from the IMF deal, which will lead to the initial release of $1.2 billion. Ahead of the currency markets opening in Pakistan, the dirham-PKR rate had been showing 57.10.
In recent months, the PKR had been duress, hitting the lowest point of 58.20. But once the IMF deal happening became more of a certainty, the volatility subsided and on Thursday (July 14), it was even quoting at 56.50.
That’s still good news for Pakistan expats in the UAE purely on the remittance side. In the year-to-date, the PKR has dropped nearly 17 per cent. But any stability in the rupee could be a temporary relief, according to market watchers.
“In the longer term, the country must take some solid steps - backed by fundamentals - by focussing on enhanced exports, controlled imports/inflation and offering comfort to local businesses,” said Naveed Ali, Finance Director at Zand, the digital bank launched in the UAE.
Businesses are feeling the heat of recent steps of direct and indirect increased taxes and increased cost of production.
Stability at 57?
Short-term forecasts are for the PKR at or around 57-57.15 to the dirham. After the extreme volatility it had suffered, anything that resembles relative stability is a positive. Any further firming up will likely have to wait “until further announcements are made from some of the Gulf countries on offering credit to Pakistan now that the IMF deal became a certainty,” said Sameer Lakhani, Managing Director at the consultancy Global Capital Partners.
News of the IMF agreement has improved sentiments although continued dollar strength has meant the rupee's appreciation has been muted. Given the expected rate increases in the US, currency upside potential is expected to be limited in the short-term.
- Sameer Lakhani of Global Capital Partners
The IMF deal comes with commitments that the government has to adhere to, including further rollbacks on subsidies across sectors. Fuel prices, even before the deal was done, has been revised upwards and so have prices of other consumer essentials.
And there will be more of these going forward. “The government has to undertake measures to stabilize the economy and avoid default, with the key focus being the implementation of FY2023 budget in terms of borrowings and revenue mobilization,” said Salman Sajid, a Dubai-based financial consultant. “Proactive monetary policy is required to guide inflation to moderate levels with a key focus on reducing poverty and strengthening social safely.
“And lastly, the focus should be to devise short-, medium and long-term action plans to survive any default risks.
For now, the IMF funds are expected to bring a temporary halt to what was a rapidly devaluing rupee and depleting foreign exchange reserves.
The IMF Board is expected to consider extension of EFF (Extended Fund Facility) until end June 2023 and an additional disbursement of $1 billion.
- Salman Sajid, Dubai-based financial consultant