Pakistani rupee declared weakest currency, expected to reach Rs350 vs dollar

WEB DESK: The Pakistani rupee (PKR) is poised to conclude the year as the worst-performing currency in Asia, and this trend is anticipated to persist into 2024.

BMI Research predicts a further decline, projecting it to reach 350 per USD by the end of the coming year.

Throughout the year, the currency has depreciated by 20.73 per cent, equivalent to Rs59.21 against the US dollar, according to reports from Bloomberg. Analysts indicate that the challenges facing the rupee are far from over.

John Ashbourne, global economist at BMI in London, a Fitch Solutions company, stated, “This looks like a currency that is set to adjust downwards,” attributing this adjustment to Pakistan’s high inflation and trade deficit.

Factors such as high debt payments and an external funding gap are exerting additional pressure on the rupee. The country faced the risk of default this year, with decreasing investments from overseas and Asia’s fastest inflation compounding its difficulties, as reported by Bloomberg.

Remittances remain subdued, heightening dependence on foreign aid for dollar flows. Although the International Monetary Fund approved a $700 million payout this month, providing temporary relief, concerns persist that challenges may extend well into 2024, necessitating further aid for the fragile economy.

A looming dollar shortage could give rise to parallel currency markets, a phenomenon observed last year when the central bank restricted access to foreign currency to safeguard diminishing reserves.

Read more: Petrol price to decline in Pakistan

Despite a crackdown on the illegal buying and selling of dollars at a premium to the exchange rate, the sharp gains appear to be short-lived.

John Ashbourne remarked, “It’ll be very hard in the long term to convince people to use the official rate if parallel markets offer more value for a dollar,” highlighting the challenges authorities face in sustaining efforts against market forces.

Goldman Sachs Group Inc. cautioned that the market will likely continue to demand a premium for the rupee due to escalating interest costs and only short-term arrangements with lenders supporting the external balance.