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The future of the Pakistani Rupee (PKR) against the US Dollar has been the subject of much discussion and analysis among financial experts. Projections indicate a potential depreciation of the PKR in the coming months and years.
Analysts at Trading Economics forecast the PKR to drop to 293.52 against the US Dollar by the end of September 2023, with a further decline to as low as 317.29 by June 2024. Similarly, the Ministry of Energy (Power Division) projects the PKR to touch 325 against the USD by the end of the current fiscal year.
Bank of America (BoFA) Securities has also expressed concerns regarding the PKR’s future. Their report suggests that debt, high inflation, and an increasing central bank policy rate could push the rupee to as low as 340 against the US Dollar by June 2024. The report highlights the impact of heavy domestic borrowing and predicts that the local currency may depreciate by up to 25 percent.
Furthermore, inflation is expected to remain strong over the next few years, with estimates reaching 26 percent in the financial year 2023-24. BoFA also anticipates an increase in the State Bank of Pakistan’s key policy rate to 25 percent, up from the current level of 22 percent.
Despite these projections, the report acknowledges the government’s optimism surrounding the new IMF lending program. The program aims to address Pakistan’s liquidity crunch in external and domestic debt servicing. However, traditional strategies to maintain financial stability are becoming constrained, and authorities may need to consider bilateral debt reprofiling and commercial debt restructuring beyond FY2024/2025.
The Budget FY24 reveals the significant burden of debt servicing costs, amounting to $25.6 billion (Rs. 7.3 trillion), which constitutes half of the total budget expenditure and 80 percent of the expected tax revenue for the fiscal year.
While the upcoming elections may offer some support for policy reforms and market trends, the long-term stability and performance of the PKR against the US Dollar remain subject to various economic factors.
