While the government continues to place its faith in the International Monetary Fund (IMF) for recovery, the Pakistani Rupee (PKR) has depreciated by 21.1 percent against the US dollar in 2023 so far and looks on its way to dropping below 300 soon.
Meanwhile, the Sri Lankan Rupee (LKR) on Monday was trading at 318.8 against the greenback, recovering substantially from last year’s low of 360 amid improving macros. In 2023, the LKR has gained 15.2 percent against the dollar, according to data shared by Topline Securities.
Regional Currencies Appreciation/(Depreciation) against US Dollar#Regional #Currency #Dollar #DollarvsRupee pic.twitter.com/XWCijrl2ZM
— Topline Securities (@toplinesec) April 10, 2023
The IMF in March approved a $3 billion bailout for Sri Lanka. The agreement, which was in the works for nearly a year, is now a lifeline for the country and reinforcing the economy. To further ramp up the exchange rate to moderate levels, the Central Bank of Sri Lanka has soft-pegged forex rates at a middle rate, and a range has been determined to allow for buying and selling.
To recall, the Sri Lankan rupee fell by roughly 80 percent last year due to a severe lack of foreign exchange reserves, from 200 to 360 per dollar. As of April 7th, 2023, the LKR is now trading in the 315-320 band.
The PKR, on the other hand, has been on a downward spiral since the spring of 2022, losing over Rs. 104 from 182.93 on 11 April 2022 to 287.09 today. In the coming months, it looks set to break beyond 300 and continue its decline against the dollar to levels potentially worse than the LKR. For a nation that has not even defaulted yet, the exchange rate movement has been shocking.
As policymakers focus on greater financial sector opening and deeper economic integration with the rest of the world, the LKR will most likely continue its ascent as more dollar assets enter the Sri Lankan reserves.
The most significant driver of the LKR comes from IMF’s brightening economic forecasts for the country in 2023, as the post-default response will lead to an all-around economic recovery throughout the year. More research forecasts the LKR to recover into the 290-280 band against the greenback at the end of the year. It may become even firmer, backed up by a gradually developing economy.
Meanwhile, the PKR may weaken further as a result of poor macroeconomic indicators and a severely stagnant economy.
