KARACHI: The Pakistani rupee is expected to depreciate against the US dollar in July due to a surge in imports. Although the local currency showed some stability in the short term, closing at 278.21 on Friday with minor gains, fluctuations are anticipated.
According to the Financial Markets Association (FMA) panel discussion held on Friday, there is a consensus that economic growth will lead to increased import pressure, affecting the external sector. Experts predict a monthly depreciation of Rs 2-3 per dollar beginning in July.
According to Tresmark, the rupee is currently slightly overvalued, and its value would be much lower if import and capital restrictions were not in place. The International Monetary Fund (IMF) report also raises concerns about the overvaluation of the rupee. It noted that there are concerns about relying too heavily on the real effective exchange rate as a measure, and highlighted the base year paradox.
Pakistan’s export-to-GDP ratio is among the lowest, with comparisons to Vietnam, Thailand, India, and Bangladesh. Experts suggest embracing competitive devaluation to boost exports. Despite the low import-to-GDP ratio, productivity remains an issue, not necessarily the currency value. The rupee has depreciated three times more than the currencies of comparable peers since 2017, challenging the notion of competitive devaluation.
Looking ahead, a measured and consistent depreciation of the rupee is expected. Market observers are also monitoring the rupee’s position in light of potential IMF bailout developments. A staff-level agreement with the IMF over a new programme is anticipated in July.
On Friday, the IMF acknowledged Pakistan’s significant progress toward reaching a staff-level agreement for an extended fund facility (EFF). Talks with Pakistan on a new loan programme began after the conclusion of a short-term $3 billion loan programme, which helped prevent a sovereign debt default.
An IMF team, led by mission chief Nathan Porter, concluded talks with the Pakistani government, aiming to finalize discussions on a comprehensive economic policy and reform program. The IMF and Pakistani authorities made notable strides towards a Staff Level Agreement (SLA) on the EFF, with ongoing virtual discussions to secure necessary financial support from the IMF and Pakistan’s bilateral and multilateral partners.
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