The Pakistani Rupee (PKR) could drop to 293.52 against the US Dollar by the end of September 2023 to as low as 317-340 by June 2024.
Analyst expectations at Trading Economics see the PKR falling to 293.52 against the greenback to as low as 317.29 by June next year. Meanwhile, Pakistan’s Ministry of Energy (Power Division) projects the PKR to touch 325 against the USD by the end of this fiscal year.
Adding more fuel to the fire, Bank of America (BoFA) Securities said in a report on Wednesday that debt, high inflation, and an ever-increasing central bank policy rate could push the rupee to as low as 340 against the dollar by June 2024.
BoFA in its June 30 report ‘Pakistan Viewpoint – Running out of ‘orthodox’ options’ said while the PKR had earlier this year touched its ‘fair value’ of 286 against the USD, heavy domestic borrowing of Rs. 2.5 trillion may depreciate the local currency by up to 25 percent to as low as 340 against the top foreign currency.
Inflation is expected to stay strong over the next three years, with an estimate of 26 percent in the financial year 2023-24 (FY). BoFA also expects the State Bank of Pakistan’s (SBP) key policy rate to climb to 25 percent this year, up from the current level of 22 percent.
Conversely, the firm forecasts Pakistan’s economy to grow by 2.5 percent this year, still short of the government’s projections of 3.5 percent during FY24.
The optimism surrounding the new IMF lending program appears to have been factored into the report’s findings.
Pakistan is experiencing a severe liquidity crunch in external and domestic debt servicing, and traditional strategies to maintain financial stability are becoming constrained. BoFA sees a full reprofiling of bilateral debt beyond FY2024/2025, while commercial debt restructuring may also be required.
Authorities may be obliged to rely on SBP in the domestic market, where liquidity is considerably tighter. Overall, with debt servicing costs growing, the potential to cope relies substantially on the short-term political temperature.
It bears mentioning that the Budget FY24 covers debt servicing costs roughly amounting to $25.6 billion (Rs. 7.3 trillion), or half the total budget expenditure and 80 percent of the expected tax revenue for the fiscal year.
Elections in the coming months may offer some support for policy reforms and market trends.
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