Business

Rupee seen falling to 325 against dollar in 2024: analysts

Published

4 months ago

Farwa

Local currency under pressure over last seven years.
Rupee has seen a 20% fall against the dollar this year.
As per REER index, it remains undervalued.

KARACHI: As Pakistan grapples with high external debt repayments, dwindling foreign exchange reserves and expected monetary easing, the rupee is expected to extend losses against the dollar in 2024, The News reported citing analysts.

Over the last seven years, the rupee has remained under pressure, which is why its woes, as per the analysts, are far from over.

The local currency has seen a 20% fall against the dollar this year, which is higher than that recorded in the last five year’s average fall of 13% a year and the 10-year average of 8%, Topline Securities, a brokerage company, said in a note.

External financing gaps, challenging global financial markets, and local political instability have severely impacted foreign exchange reserves and built pressure on the rupee.

As per the real effective exchange rate (REER) index, rupee is undervalued. The latest November’s REER index published by the State Bank of Pakistan stands at 98.18 versus the last 10-year average of 106.6.

Considering Pakistan’s external payment risk and other factors, Topline expects the currency to fall to 310 against the dollar by June 2024 in the interbank market. It also sees the rupee dropping to 325 by the end of next year. The rupee closed at 282.20 to the dollar on Wednesday, compared with its previous closing value of 282.37.

Pakistan has been grappling with record-high inflation as a result of rising energy prices to meet the reform targets mandated by the IMF’s lending programme. From July through November of FY2024, the average rate of inflation is 28.6%. Inflation is expected to decline, supporting the case for interest rate cuts in 2024.

As significant debt obligations approach early in the coming year and the run-up to the elections, another analyst projects that the rupee could weaken to 295-296 versus the dollar in 2024. The rupee may weaken further due to expected monetary easing.

Pakistan’s external funding needs are estimated at $28.7 billion for the current fiscal year, including $24.6 billion for debt repayments and $4 billion for the financing of the current account deficit. Out of this, $5.48 billion has been repaid already and $9.3 billion has been agreed to be rolled over, according to analysts.

This result in a funding gap of $14 billion is expected to be filled by foreign investments ($1.5 billion), the International Monetary Fund’s disbursements under its loan programme ($3 billion), and loans from other multilateral creditors ($4.5 billion). After this, the shortfall in the country’s gross external financing requirements and available funding is $5 billion. However, the country’s official reserves have fallen to around $7 billion as of December 15.

When the caretaker government took charge in August 2023, the rupee came further under pressure amid speculation that the non-political caretaker setup might allow the currency to fall. As a result, the rupee fell by 6% (from 288 to 307) in the interbank market, while it plummeted by 10% (from 296 to 328) against the US dollar in the open market from August 14, 2023 to September 04, 2023.

The rally in US currency after August was mainly driven by open and black markets where the premium (open market vs interbank rate) increased from 1-2% to 8-9%.

The caretaker government, along with the State Bank of Pakistan (SBP), took several measures to cool down the demand in the open market. The measures included (1) tightening security along the border to prevent currency smuggling, (2) closure of exchange companies involved in illegal activities, and (3) an increase in the minimum capital requirement from Rs200 million to Rs500 million for exchange companies.

As a result of these measures, the rupee has gained strength in the interbank market, appreciating by 9% from 307 to 282 against the dollar. Meanwhile, in the open market, it has increased by 16%, moving from 328 on September 04, 2023, to 284 as of December 27, 2023.

Business

FBR Reforms: PM Leading Reforms Process with Law Minister as Top Priority

Published

9 hours ago

Farwa

According to Federal Law Minister Azam Nazir Tarar, Prime Minister Shehbaz is leading the entire reform process, and the Federal Government has made the reforms at the Federal Board of Revenue its top priority.

According to the law minister, who was speaking at a press conference in Islamabad, there are presently one billion rupees worth of tax cases pending in court. The parliament has for the first time passed legislation on tax tribunals in an effort to streamline and accelerate the legal process.

He stated that, strictly according to merit, there have already been a few postings and transfers in the FBR and that more are anticipated in the next few days.

Federal Information Minister Atta Tarar, who accompanied the Law Minister, stated that Prime Minister Shehbaz Sharif is spearheading an effective foreign policy through productive meetings with world leaders.

He declared the premier’s trip to Saudi Arabia, where Shehbaz Sharif met with government representatives and corporate executives who indicated interest in investing in Pakistan, a success.

Atta Tarar also declared that a commercial team from Saudi Arabia would be visiting soon.

Business

Pakistan will host an IMF team in May to discuss a new loan.

Published

10 hours ago

Farwa

According to sources, negotiations on a fresh loan program have been set between Pakistan and the foreign lender. There will be two stages to the meetings: technical discussions and policy-level conversations.

Prior to the upcoming negotiations, Pakistan must overcome formidable economic obstacles, including the collapse of an IMF-proposed tax amnesty program.

Although it hasn’t worked, the federal government had promised to include 3.1 million merchants in the scheme’s tax net. The recent turnover of senior officials has placed the Federal Board of Revenue (FBR) in an atypical position.

The negotiation process with the IMF will be difficult for the new and inexperienced FBR team. The significant drop in FBR’s tax collections would likely worry the IMF.

A day prior, Pakistan obtained the eagerly awaited $1.1 billion last installment from the IMF as a component of the $3 billion standby agreement.

Special Drawing Rights (SDR) 828 million, or $1.1 billion in worth, were given to the SBP “after the successful completion of the second review by the Executive Board of IMF under Stand By Arrangement (SBA),” according to the SBP.

Finance Minister Muhammad Aurangzeb stated Islamabad might obtain a staff-level agreement on the new program by early July. Pakistan is seeking a new, longer-term, and larger IMF loan.

Although Aurangzeb has neglected to specify the specific program in question, Islamabad has stated that it is seeking a loan for a minimum of three years in order to support macroeconomic stability and carry out long-overdue and difficult structural reforms. Should it be approved, Pakistan would receive its 24th IMF bailout.

Business

In FY2024, SRB tax revenue soars to Rs 185.2 billion.

Published

10 hours ago

Farwa

In a statement released here, the SRB’s chairman, Wasif Memon, stated that he briefed Sindh Chief Minister Syed Murad Ali Shah about the organization’s revenue collections during their meeting.

In comparison, the tax collection during the same period of the previous financial year 2022–2023 stood at Rs143.3 billion. This achievement represents a 29 percent year-over-year growth, according to the Sindh Revenue Board (SRB), which recorded record revenue of Rs185.2 billion during the first nine months of the fiscal year 2023–2024.

The CM stated at the time that the SRB has shown tenacity and efficiency in revenue collection in spite of facing a number of difficulties, including the general economic downturn.

According to the statement, SRB’s monthly tax collection for April 2024 was Rs18.8 billion, a 23 percent increase from the Rs15.2 billion collected in the same month the previous year.