September 30, 2023 (MLN): The Pakistani rupee (PKR) had been experiencing its fair share of challenges over the past few months, but September emerged as a month of renewed hope, buoyed by the army-backed administrative reforms to save the sinking ship.

The local unit finished the month marked by second-best performance since 2014 in percentage terms, gaining 6.19% against the US Dollar, and took home the coveted title of best-performing currencies in the world for the month.

In stark contrast to the bleak macros that had plagued the Pakistani rupee, the army-backed crackdown on the illegal dollar trades has significantly helped the PKR.

The currency closed at PKR 287.74 per USD, as compared to the previous month's closing of PKR 305.54 per USD.

Additionally, it closed at 285/288.5 per USD in the open market, narrowing the spread between interbank and open market from 8% earlier in the month to less than a percent, falling below International Monetary Fund (IMF)'s 1.25% recommended limit.

Earlier this month, the rupee had slipped to an all-time low of 307.1 per USD in interbank and 331 per USD in the open market, the government's efforts on crackdown against speculators, hoarders, and smugglers to restrict illegal dollar outflows have helped the currency significantly.

The Pakistani rupee's remarkable rebound in September stood out even more against the backdrop of the relentless rise of the US Dollar Index (DXY).

To note, DXY, which tracks the value of the dollar against six other major currencies, marked its 11th consecutive weekly gain—a streak not seen since 2014. Moreover, in September, DXY recorded a 2.43% increase.

Expert fraternity is of the view that many leakages were happening through illegal channels of hawala and hundi trade from the open market.

Moreover, recent reforms introduced by the State Bank of Pakistan (SBP) to consolidate and transform various types of exchange companies into a single category with a well-defined mandate and higher capital requirements are also enhancing transparency.

To note, SBP suspended the authorization of four exchange companies in September, underscoring the central bank's commitment to ensuring compliance with regulatory standards.

These reforms also apply to the banks actively engaged in foreign exchange business, mandating them to set up wholly owned ECs to address the legitimate foreign exchange needs of the general public.

Following the guidelines of the central bank, certain banks such as; FABL,  ABL, BAHL, MCB, MEBL, and UBL, have decided to establish their own exchange company.

It is worth noting that PKR has almost entirely erased the current financial year's depreciation against the Dollar, which now stands at just 1.75 rupees or 0.61%. While the current calendar year has seen PKR depreciate by 61.31 rupees or 21.31%.

Outlook

Going forward, the PKR's future hinges on multiple factors, with the completion of the IMF review in November 2023 being a critical driver of the local currency's performance. 

The IMF review will assess Pakistan's progress on meeting its obligations under the bailout agreement.

Moreover, global oil prices, which have surged to the highest levels since August 2022 pose a threat to the currency, due to Pakistan being a net oil importer, which can put pressure on the PKR.

As per the governor of SBP, Pakistan's total external financing requirement for FY24 is $24.6 billion.

As of FY24TD, an amount of $2.8bn has been successfully paid, and approximately $11bn is anticipated to be rolled over.

Accordingly, the net repayable amount stands at $8bn.

According to Dr. Shamshad Akhtar, Pakistan is expected to receive a cumulative sum of $1.4bn from multilateral lenders like IMF, World Bank and Asian Development Bank in FY24. 

The country is also hopeful of securing timely rollover of maturing loans from friendly countries like China, Saudi Arabia, and UAE. 

Additionally, improved transparency, lower spread between interbank and black market rates, coupled with strict measures against dollar smuggling is expected to boost workers's remittances.

These inflows will be crucial for the cash strapped county to meets its external financial obligations and stabilize PKR.

PKR Performance Summary

Copyright Mettis Link News

Posted on: 2023-09-30T22:30:38+05:00