Average exchange rate to hover around Rs305 by June 2024, projects IMF

ISLAMABAD: The International Monetary Fund’s (IMF) latest assumptions suggest that the average exchange rate could be around Rs305 to a dollar at the end of the current fiscal year, which is higher than the rate quoted by the government to prepare the budget for the ongoing year, according to a report published in The Express Tribune.

Neither has the IMF given the exchange rate in its recent staff-level report explicitly nor is there any agreed rate between Pakistan and the foreign lender.

The underlying assumptions are used to work out current account deficit, suggesting that the IMF has priced the dollar at an average rate of over Rs305.

The fresh IMF assumption is lower as compared to the State Bank of Pakistan’s internal workings that projected the average rate at Rs308 to a dollar, according to the sources. The government had prepared the budget for financial year 2023-24, basing the exchange rate at Rs290 to a dollar.

If the dollar crosses the Rs300 mark during the course of the current fiscal year, it will have an impact on the defence budget, foreign debt servicing, the cost of running Pakistan’s missions abroad and the Public Sector Development Programme (PSDP).

Any fluctuations in the dollar rate or underestimation at the time of budgeting can render the entire budget unrealistic, leading to cost overruns and the need for supplementary grants.

In the staff-level report, the IMF has not stated the exchange rate valuation in explicit terms again. The numbers have been worked out on the basis of backward working of the current account deficit projections that show that the rupee would keep losing its value under the IMF programme and beyond it.

The assumptions are subject to changes. The improvement in the external inflows, higher exports and remittances can result in less depreciation of the rupee. One of the factors undermining the exports is a constant rise in the cost of doing business due to higher taxes, transport cost and rise in electricity and gas tariffs.

In the past, the IMF had said that “published staff reports on Pakistan include exchange rate assumptions which are not predictions. Under the IMF-supported programme, there is not an agreed target level for the exchange rate, which is market-determined”.

The average exchange rate of Rs305 to a dollar by June 2024 means that the year-end rupee-dollar parity will be higher than this threshold.

The IMF’s report showed that the size of Pakistan’s economy — in rupee terms — will be Rs108.9 trillion by June this year, and it is projected at $356 billion in dollar terms.

For the past few days, the rupee has been constantly losing its value against the US dollar after initially gaining by 3.8% on the back of the Pakistan-IMF staff-level agreement for the $3 billion package.

The dollar price closed at Rs283.80 on Wednesday. Pakistan’s economic fundamentals remain weak and there is still high demand for the dollars in the market.