Asad Rizvi
After disbursement of Emergency Funding of USD 1.4 Billion released under IMF Rapid Financing Instrument (RFI), Pak Rupee has recovered & some more gain is expected. An increase in SBP’s FX RESERVES too is helping to bring stability in the inter-bank market.
The good news is that the BOP position after a great plunge in oil prices in the international market & import contraction assisted in improving the current account position reducing the July-March deficit number to $ 2.768 billion.
Since the size of our imports is twice the size of exports, if global slowdown hurt’s our exports, it is likely to reduce imports in the same proportion, which will be beneficial as import bill will reduce in bigger numbers in terms of US Dollars.
The potential risk is that remittances could suffer due to softer oil, but since the Gulf market is gradually opening up due to Ramzan & Eid, it is most likely to help, as overseas Pakistanis will be sending money home.
If the inflow of Foreign Currency remains unchanged at the current pace, there is a possibility of minor surplus before the end of the current Fiscal Year.
The risk is that though it is early to predict the trend due to uncertain global conditions, lower oil prices may hurt Gulf oil-producing economies that will add pressure on jobs or due to possible downward adjustment of salaries.
Based on the trade balance & inflation trend, Real Effective Exchange Rate (REER), Rupee is slightly undervalued by REER measure. Against February 97.22, in March it further gained to 96.27 & improvement in April number should not be very surprising.
Despite so much of hue & cry that hot money will inflict severe damage to Rupee & the economy, it too had almost disappeared from SBP books without hurting.
The outflow was quite normal due to the CORONA factor. Estimated portfolio outflows from emerging markets are about $100 billion, which is three times larger than the previous global financial crisis during the same period.
In all probability, Rupee is likely to remain stable in the last fiscal year and may hover between 155-165 levels, unless inflow gets choked.
However, do keep a firm eye on any cancellation export orders or possible requests for a delay that could spoil the party.
Disclaimer: The opinions in this article are the author’s and do not necessarily represent the views of Mettis Link News (MLN).
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