The Pakistani Rupee (PKR) could fall to 293.52 per US dollar by the end of September 2023 and as low as 317-340 per US dollar by June 2024.
According to Trading Economics, the PKR would fall from 293.52 to 317.29 against the USD by June of next year. Meanwhile, Pakistan’s Ministry of Energy (Power Division) forecasts that the PKR would reach 325 per USD by the end of the fiscal year.
Bank of America (BoFA) Securities stated in a study on Wednesday that debt, high inflation, and an ever-increasing central bank policy rate might push the rupee as low as 340 versus the dollar by June 2024, adding fuel to the flames.
While the PKR had earlier this year reached 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% to as low as 340 against the top foreign currency, according to BoFA’s June 30 report ‘Pakistan Viewpoint – Running out of ‘orthodox’ options.
Inflation is predicted to remain high over the following three years, with a forecast of 26 percent in fiscal year 2023-24 (FY). BoFA also anticipates that the State Bank of Pakistan’s (SBP) key policy rate will rise to 25% this year, up from the present level of 22%.
In contrast, the firm predicts that Pakistan’s GDP would grow by 2.5 percent this year, falling short of the government’s 3.5 percent goal for FY24.
The report’s findings appear to have taken into account the optimism around the new IMF funding programme.
Pakistan is facing a severe cash shortage in external and domestic debt servicing, and traditional financial stability techniques are becoming restricted. Beyond FY2024/2025, the BoFA envisions a full reprofiling of bilateral debt, as well as commercial debt restructuring.
Authorities may be forced to use SBP in the domestic market, where liquidity is much tighter. Overall, with debt servicing costs rising, the ability to cope is heavily reliant on the short-term political climate.
It is worth noting that the Budget FY24 covers debt servicing expenditures in the amount of $25.6 billion (Rs. 7.3 trillion), which is about half of the total budget spending and 80 percent of the estimated tax collection for the fiscal year.
The upcoming elections may provide some support for policy reforms and market movements.