US dollar’s rise to help Pakistan’s economy: Fitch

By: News Desk
Published: 04:03 PM, 31 Jan, 2023
US dollar’s rise to help Pakistan’s economy: Fitch
Caption: Representational image.
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The Pakistani rupee could weaken even further against the US dollar but its depreciation will help the country secure further disbursements from the International Monetary Fund (IMF).

Credit intelligence agency Fitch Solutions said in its Country Risk & Industry Research report that a weakening PKR will have broader economic implications but also at the same time invite IMF support for the longer-term outlook as it would help ease Pakistan’s balance of payments crisis, reported 24NewsHD TV channel on Tuesday.

The rupee was devalued on January 26th, dropping significantly by 8.3 percent against the dollar on the day itself. The currency has weakened by a further 5 percent since then, to all-time highs of around Rs270 against the US dollar as of January 31st.

Fitch says the PKR devaluation was triggered by the decision among local foreign exchange companies to remove a self-imposed cap on the exchange rate on January 25.

The State Bank of Pakistan (SBP) initially intervened, but the significant depreciation in the rupee is a clear sign that the authorities have effectively loosened their grip on the currency.

According to the agency, its current forecast for the rupee to reach Rs248/USD by year-end is looking out of date. It said, “We believe that the rupee’s weakness still has further to run particularly with Pakistan’s balance of payments position likely to remain weak for several more months to come. That said, there remains a considerable amount of uncertainty at this juncture. For example, it is difficult to gauge the extent to which the latest devaluation has caused investor sentiment to further sour. We will therefore firm up our rupee forecasts over the coming weeks, once the dust settles”.

Fitch further guesstimated that continued weakening in the rupee will have broader economic implications too. In the near future, it could exacerbate imported inflationary pressure, and may eventually result in steeper policy rate hikes from the SBP. These factors would only exacerbate Pakistan’s challenging economic outlook. Fitch expects the economy to contract by 0.3 percent in FY2022/23.

The credit intelligence agency says the rupee’s devaluation will help Pakistan with securing further disbursements from the IMF, which would be a positive for the longer-term outlook as it would help ease Pakistan’s balance of payments strains.

One condition under the IMF’s External Fund Facility agreement is for Pakistan to move towards an exchange rate regime that is determined by market forces.

Reporter Ashraf Khan

Categories : Business