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No flames too wild, Stop panicking

Pakistani rupee strengthens marginally versus US dollar
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December 07, 2022 (MLN): With the rising noise regarding sovereign default on melting reserves and the recent round of currency depreciation, the anxiety among market participants is escalating. Particularly from the exchange rate perspective, all eyes are on the dollar rate as being a net importer Pakistan’s currency market is news sensitive amid the dollar shortage.

Every other individual is looking for the answer regarding the future of PKR against USD in the medium term and long term.  Where it is going to settle by the end of FY23 and what will happen with dollar rates in FY24 and so on?

At this crucial stage where the economy is already bearing the pressure of uncertainty and witnessing chaos, all the answers to this critical question can make the situation worst as speculative elements are always there to make the most of it by taking cues.

The anticipations and estimations may sometimes prove speculative mainly due to rapidly changing underlying fundamentals and bottomless uncertainty on the policy side.

A recent report by Topline Securities anticipated that the local unit may go below PKR 270, PKR 290, and PKR 320 per USD by the end of FY23, FY24, and FY25, respectively.

The anticipated numbers immediately caught the attention of the media and news related to further depreciation of the local unit started making rounds that created more panic among market participants.

The estimations are solely based on the base case wherein the report assumes that Pakistan will consider Debt Rescheduling (Base Case) with its bilateral lenders especially China as it forms 30% of government external debt and the repayment to China is huge in the next few years.

Pakistan’s external Debt Repayment obligations are becoming too large to handle and restructuring is inevitable. Due to these high debt repayments and ongoing current account deficit, Pakistan’s external funding gap is increasing and is becoming a bone of contention, the report said.

Speaking to Mettis Global, Umair Nasser Director of Research at Topline Securities said that the estimated numbers are based on the assumption of the government's consideration for debt rescheduling.

“We think that a bigger and stricter IMF program along with Debt Restructuring will happen in 2023,” he noted.

It is also expected that a new program to be in the range of US$15-20bn while other IFIs like World Bank, ADB, etc will also disburse a similar amount taking total disbursement to US$40bn in the next 3-4 years.

This will be accompanied by a restructuring of debt repayment of at least $30bn accompanied by tough exchange rates, and tighter monetary and fiscal measures. In our base case, we have taken the EIA forecast of international oil price (WTI) of $89/bbl in FY23, $86/bbl in FY24, and $80/bbl in FY25 and onwards. We have also assumed flood relief and climate change funding of $2bn a year, he added.

Though the base case is on point and given the present scenario, the currency will have to endure pressure but the numbers as a result of any anticipation create more panic in the already distressed environment.

The country is already under the deep water and kept market participants in a cautious mode as macros demonstrate worrisome figures while the political upheaval is adding more fuel to the fire. Right at the same time, any estimated number that looks too depressing leaves a notable mark.

Copyright Mettis Link News

Posted on: 2022-12-07T15:53:21+05:00