(MENAFN- Khaleej Times) The Pakistani Rupee has recorded a smart rally against the US Dollar on positive economic indicators, and experts believe it will continue its upward trend despite some challenges ahead.
Analysts and market pundits have said the currency will be a major beneficiary of higher GDP growth, rising foreign exchange reserves and steady remittances of over $2 trillion over the course of the year. of the first eight months of the current 2020-21 financial year.
The rupee has appreciated 1.7% against the dollar so far this year and closed at 157.12 in the interbank market on Friday. Against the United Arab Emirates dirham, it ended up slightly at 42.77 against 43.6 on January 8, reflecting an appreciation of 1.9%.
“The Pakistani rupee has returned to stability mainly due to increased remittances, debt relief due to the Covid-19 payment relief plan and the economic rebound in the country, they said. said experts.
The latest central bank data indicates that Pakistan’s economy is expected to post GDP growth of 2.5% in the current fiscal year ending June 2021 after contracting 0.4% in the year. last, the government’s policy measures beginning to show positive results.
The country recorded a 24% year-on-year increase in workers’ remittances to $16.5 billion during the July 2020-January 2021 period, while foreign exchange reserves reached $20.13 billion. in the week ending February 26 against $20.04 billion a week ago, according to the State Bank of Pakistan (SBP).
“Foreign exchange reserves held by the central bank increased by $70 million to $12.978 billion due to official government inflows. Foreign exchange reserves of commercial banks also increased from $7.132 billion to $7.155 billion, the SBP said.
Central bank data also showed Pakistan’s current account deficit narrowed 55% on an annual basis to $229 million in January from $512 million in the same month last year, due increased exports and increased remittances.
Devesh Mamtani, chief market strategist at Century Financial, said the rupee has maintained an upward trend due to positive economic indicators, but some challenges will keep the currency under pressure in 2021.
“From a high of 168 against the US Dollar seen last year when the pandemic began, the Rupee has appreciated 6.5% and is currently trading near 158 levels. A flurry of positive factors helped the rupiah strengthen over the past year. This includes factors such as the resumption of IMF activities [International Monetary Fund’s] $6 billion loan facility, reduction in current account deficit and agreement by G20 lenders for second debt relief for the Pakistani economy. The resumption of the IMF bailout program is a huge win for the economy in particular, as it was stalled last year due to the pandemic, Mamtani said.
Future direction
On the outlook for the rupiah in 2021, he said its future depends mainly on the full availability of the bailout package as well as the country’s success in raising additional funds through bond issuance. “The IMF facility will help the country convince international investors as it seeks to raise more than $1.5 billion through the sale of global bonds. This is needed to close the budget gap, which is currently pegged at 7.5% of GDP The government must strictly adhere to its fiscal deficit target and not exceed key spending areas in order to balance the overall deficit, Mamtani said.
He said the return of the IMF is definitely a big positive for the rupiah as well as the economy. IMF staff recently reached an agreement with the Pakistani authorities to complete the second to fifth round of reviews announced in 2019.
“The success of this project will likely see around $500 million in funds flowing into the economy. The IMF’s plans are also creating optimism about the economy with larger, global institutional investors who will be reluctant to invest and spend without the IMF’s presence, he said.
Asked about the rupiah’s major challenges, he said that the Pakistani government’s adherence to fiscal deficit targets, compliance with broader IMF conditions, successful domestic bond sales and further rate cuts Inflation rates will remain key factors in determining the currency’s future direction. .
Stronger entrances
Samiullah Tariq, head of research at Pakistan Kuwait Investment Company, said the rupiah is expected to appreciate against the US dollar due to positive economic indicators as well as the stability of the economy.
“The main reason for the appreciation of the rupee is stronger inflows under Roshan digital accounts and higher remittances in this financial year. Pakistan has also started using some loan facilities to pay for petroleum products , he added.
To a question, he said that the resumption of the IMF plan will further strengthen the rupee in the near future.
“The IMF plan should firm up repayments of existing loans as well as bolster the country’s foreign exchange reserves,” he said.
In response to a question on the main challenges, he said rising oil and other commodity prices will keep the rupiah under pressure in 2021.
“I expect the rupee to depreciate two to three percent against the greenback this year.
On the impact of the Financial Action Task Force (FATF) possible decision on the gray list, Tariq said that the currency would not be affected by this whether it is gray or white.
“I think we are already seeing significant inflows despite being greylisted. The supply of US dollars is improving with the introduction of new entry channels and the liberalization of the foreign exchange regime, so these seem more important than the FATF at the moment, he said.
‘Yes, the blacklist can be dangerous, but gray or white… [but] I don’t think this will have a major impact on the future direction of the rupee.
Positive indicators
Muhammad Nafees, vice president of finance at the Pakistan Business Council, said the value of a currency is directly related to the position of the current account.
“Pakistan’s economy is improving day by day. An increase in remittances from Pakistanis abroad, investments in digital Roshan accounts, an increase in exports and a decrease in imports of non-essential items have contributed to the increase in the value of the currency. However, Pakistan is still not out of the woods and will need IMF support, he said.
Furthermore, he said that the prospects for the China-Pakistan Economic Corridor (CPEC) are improving and more and more countries are realizing the importance of this project.
“This will further support the value of the rupee. I see very good prospects for the currency in 2021 and beyond. Pakistan has handled the Covid-19 challenge very well and has announced a full return to economic activities from March 15, 2021, he said.
Work on the CPEC continues unabated even during the peak of the Covid-19 pandemic and several projects for the port city of Gwadar have been completed ahead of time, according to a senior government official.
Gwadar Port has already started playing its key role in facilitating trade with Afghanistan as, so far, thousands of metric tons of fertilizer and sugar have been delivered to the landlocked country, it said. -he declares.
“The Gwadar Port and CPEC projects will not only benefit Pakistan and China, but also other countries in the region, including landlocked states in Central Asia,” he added.
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