The PKR had been through intense volatility through June and July, culminating in hitting the lowest point ever of 228 to the dollar. But in August, it's all been about a comeback. Image Credit: Reuters

Dubai: The hot streak set by the Pakistan rupee this month has snapped, with the currency at 215 to the dollar and down from the high of 211 it had hit last week. But there’s enough buzz happening within the Pakistan economy for the PKR to remain relatively stable at these levels, according to market watchers.

By 11.45 GST, the PKR made some recovery to 214.18 levels, but analysts expect movements within a tight range.

Even then, it’s still quite a comeback from the brink situation for the PKR, which had dropped nearly 40 per cent this year to a series of new lows in June-July and hitting 240. The Pakistan rupee had started the year at 178.25.

Indeed, what’s happening in other spaces within the Pakistan economy will have a bearing on the rupee’s short- to medium-term prospects. There is talk about Qatar buying a sizeable stake in the flagship PIA (Pakistan International Airlines) and also a prized hotel – the Roosevelt – in Manhattan. This week, the government also lifted the import curbs on luxury goods, which had been done to save as much of the dollar reserves as possible when the economy – and the PKR – was going through a crisis.

Above all, there is the anticipation of the IMF releasing new funds imminently as more of the pre-conditions are met by the government. “The PKR’s smart rally this month comes on the back of news that all conditions for the IMF have been met along with a significant reduction in Pakistan’s current account deficit,” said Sameer Lakhani, Managing Director at Global Capital Partners.

Whilst inflationary concerns will continue to persist - and therefore volatility - there appears to be a growing consensus that Pakistan may have turned the corner in terms of staving off default and is on the path to stabilization.

- Sameer Lakhani of Global Capital Partners

While it awaits the potential nod from Qatar for stake sales in PIA and the Roosevelt, Pakistan can soon call on other fund flows, most notably from the UAE. A $1 billion windfall awaits Pakistani businesses across sectors from the UAE, which was announced earlier in the month.

Together with the IMF deal, each of these crucial investments into the country should shore up the currency short-term. FX analysts say that this week’s decline has more to do with the dollar’s strength rather than an inherent weakness with the rupee.

It’s all changing for PKR

“A few weeks ago, the Pakistan rupee was in a free fall due a bleak current account position,” said Muhammad Nafees, Vice-President for Finance, at Pakistan Business Council, Dubai. “As soon as IMF confirmed the approval of an economic assistance package, the rupee started stabilizing.

Assurances have also been received from allies to support Pakistan. The freefall has stopped for the time being, but there must be greater stability needed to further strengthen the value of the rupee.

- Muhammad Nafees of Pakistan Business Council, Dubai

Remittance sentiments

FX observers say that Pakistani expats in the UAE had benefitted immensely from the extended weakness of the rupee since March, which was when the pace of depreciation accelerated. They say anything in the 210-215 range will be a positive for remittances. And that the current levels still represent a major dip from the 178/179 levels in January.

What caused the PKR’s historic drop?
Through June and July, the PKR went through an extended lean spell, hitting successive lows against the dollar, culminating an all-time hit of 239.5 on July 28.

“The trend was fueled by rating agencies announcing revisions in Pakistan’s outlook to negative by quoting a bigger current account deficit, external debt maturities,” said Naveed Ali, Finance Director at UAE’s Zand Digital Bank. “There was also the widened fiscal deficit of 7.5 per cent and inflation of 18-20 per cent for 2023 that compelled the rating agencies.

“The currency lost around 25 per cent since end-March, and has bounced back to a level that is expected to be sustainable in the near future. Further strengthening will come on the back of IMF's release of next tranche coupled with funding commitments from friendly countries.”