Despite a period of stability lasting over two months, currency experts are warning of potential shocks to the exchange rate in March. Several factors, including the economic performance in the third quarter, are expected to influence the outlook for the exchange rate.
Concerns have been raised about the lower-than-anticipated inflows of dollars, with both remittances and foreign direct investment falling short of expectations. Remittances in the first half of the fiscal year were 6% lower, raising serious concerns, especially given the lower remittances in the previous fiscal year.
The upcoming general elections are expected to impact inflows, with a consensus among market players that inflows would decrease during this period. The Special Investment Facilitation Council (SIFC) has a target of $100 billion in investment inflows over the next three to five years, but expectations for the current year’s inflows seem uncertain, with potential improvements after the elections and the formation of a new government.
A significant concern for currency experts is the last tranche of $1.2 billion from the International Monetary Fund (IMF), scheduled to be decided in March. The caretaker government is hopeful of receiving it, but there are suggestions that a new government may renegotiate with the IMF, adding uncertainty to the situation.
Convincing the IMF to continue current economic policies will be crucial for the new government, especially as various political parties are announcing economic benefits, potentially creating challenges for future relations with the donor agency.
The caretaker finance minister has reiterated the need for another bailout package to sustain economic growth. The unfolding events in March will play a critical role in determining the future stability of the exchange rate and economic outlook in Pakistan.
