United Arab Emirates – Pakistani rupee enjoys smart recovery

(MENAFN – Khaleej Times) The Pakistani rupee has made a smart rally against the US dollar on positive economic indicators, and experts believe it will continue its uptrend despite some challenges ahead.

Analysts and market experts have said the currency will be one of the main beneficiaries of higher GDP growth, increased foreign exchange reserves and constant remittances of over $ 2 billion over the course of the year. the first eight months of the current 2020-21 fiscal year.

The rupee has so far appreciated 1.7% against the dollar this year and closed at 157.12 on the interbank market on Friday. Against the UAE dirham, it ended up slightly to 42.77 from 43.6 on January 8, reflecting an appreciation of 1.9%.

“The Pakistani rupee has returned to stability mainly due to the increase in remittances, debt relief due to the Covid-19 payment relief plan and the economic rebound in the country, have said experts.

Latest central bank data shows Pakistan economy is expected to post 2.5% GDP growth in current fiscal year ending June 2021 after contracting 0.4% on year latest as the government’s policy measures start to yield positive results.

The country saw 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 ended Feb. 26, up from $ 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 to $ 7.155 billion from $ 7.132 billion, the SBP said.

Central bank data also showed Pakistan’s current account deficit narrowed 55 percent year-on-year to $ 229 million in January, from $ 512 million in the same month last year due to the increased exports and increased remittances.

Devesh Mamtani, chief market strategist at Century Financial, said the rupee maintains an uptrend 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 over the past year when the pandemic began, the rupee has appreciated 6.5% and is currently trading near 158 levels. A wave of positive factors has helped the rupee to strengthen over the past year. This includes factors such as the IMF’s recovery [International Monetary Fund’s] $ 6 billion loan facility, reduction of the current account deficit and agreement of G20 lenders for second debt relief for the Pakistani economy. The resumption of the IMF bailout program is particularly a huge victory for the economy, as it was stalled last year due to the pandemic, Mamtani said.

Future direction

Regarding the rupee’s outlook in 2021, he said his future depends mainly on the full availability of the bailout as well as the country’s success in raising additional funds through bond issuance. “The IMF facility will help the country appeal to international investors when it seeks to raise more than $ 1.5 billion through sales of global bonds. This is necessary to close the budget deficit, which is currently set at 7.5 percent of GDP. The government must strictly adhere to its budget deficit target and not overshoot major spending areas in order to balance the overall deficit figures, Mamtani said.

He said that the return of the IMF is certainly of great benefit to the rupee as well as to the economy. Staff recently reached an agreement with the Pakistani authorities to complete the second to fifth rounds of reviews announced in 2019.

“The success of this operation will likely see approximately $ 500 million in funds flow into the economy. The IMF’s plans also create optimism about the economy among larger and global institutional investors, who will be reluctant to invest and spend without any IMF presence, he said.

When asked about the rupee’s major challenges, he said the Pakistani government’s adherence to budget deficit targets, adherence to broader IMF conditions, successful domestic bond sales and a further cut in rates inflation will remain key factors in determining the future direction of the currency. .

Greater influxes

Samiullah Tariq, head of research at Pakistan Kuwait Investment Company, said the rupee 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 rupee’s appreciation is the increase in entries under Roshan digital accounts and the increase in remittances during this fiscal year. Pakistan has also started to benefit from certain loan facilities to pay for petroleum products, he added.

To a question, he said resuming the IMF plan would further strengthen the rupee in the near future.

“The IMF plan should strengthen the repayments of existing loans as well as strengthen the country’s foreign exchange reserves,” he said.

Responding to a question about the major challenges, he said rising prices for oil and other commodities will keep the rupee under pressure in 2021.

“I expect the rupee to depreciate two to three percent against the greenback this year.

On the impact of the possible Financial Action Task Force (FATF) graylisting decision, Tariq said the currency would not be affected by this, whether gray or white.

“I think we are already seeing significant inflows despite being on the gray list. The supply of the US dollar is improving with the introduction of new entry channels and the liberalization of the exchange rate regime, so the latter 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.

“The Pakistani economy is improving day by day. An increase in remittances from overseas Pakistanis, investments in Roshan digital accounts, an increase in exports and a decrease in imports of non-essential items have all 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.

In addition, he said the prospects of 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 handled the Covid-19 challenge very well and 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.

The port of Gwadar has already started to play 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, he said. he declares.

“The Gwadar Port and CPEC projects will benefit not only Pakistan and China, but also other countries in the region, including the landlocked states in Central Asia,” he added.

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