The rupee is on the rise and its upward journey looks sustainable, at least in the short term.

In just three months, the rupee has gained five per cent value against the dollar, rising to 103.13 per dollar on March 7 from its historic low of 108.64 on December 3, 2013. Earlier, between July 1 and December 3, the rupee had lost 9pc against the greenback.

Growth in remittances and exports, cut in import bills, better forex management by the central bank and a crackdown on currency speculators helped the rupee’s impressive recovery.

Forex inflows under an IMF loan and from some friendly countries including China and Saudi Arabia, and release of the stalled Coalition Support Fund, also played a role in it.

Forex reserves, which had shrunk by 27pc to $7.988 billion by end-January 2014 from $11.02 billion at end-June 2013, rose to $8.737 billion.

And while foreign direct investment (FDI) has remained flat so far, numerous MoUs have been signed with foreign companies and institutions, which have promised to pump in several billions of dollars into Pakistan’s economy in the medium term.

The latest in the series is a $2.5 billion foreign investment MoU in the energy sector, spread over three and a half years, signed between the federal government and Dubai-based Arab National Holdings.

A bit earlier, Chinese state and private sector companies had signed multiple MoUs with Pakistan to invest $20 billion in conventional and renewable energy projects over the next five years. These and similar foreign investment agreements signed since the change of government last June has fueled optimism about mid-term exchange rate stability.

“The rupee’s short-term gain, however, owes more to better forex management,” insists a top finance ministry official. “The government implemented the IMF loan programme, which has facilitated the release of two installments of over a billion dollars.

“The SBP also introduced stricter discipline in the forex market. The combined impact was that we didn’t run short of funds to make external debt payments, and, at the same time, speculative attacks on the rupee prior to end-quarter debt payments were blocked.”

And while paucity of funds for making foreign debt payments was feeding anti-rupee sentiments and the speculative attacks weakening the rupee beyond justification, “the rupee is now recovering”.

Finance Minister Ishaq Dar is also upbeat about sustaining the rupee’s recent gains. He has predicted that forex reserves would continue to rise and touch the $10 billion-mark by the end of this month.

What makes him so optimistic is that “we are on track to receiving the third IMF tranche [of over $500 million] before end-March, and sizable FDI inflows are in the pipeline,” explains a finance ministry official.

Similarly, FDI commitments in energy, power and infrastructure would continue to come in installments, month after month and year after year. On top of that, the auctioning of 3G/4G wireless spectrum licences in April is expected to raise an estimated $1.6 billion.

“So, exchange rate volatility would gradually become less frequent and stability would be more stretched in the medium term,” says the treasurer of a large local bank.

In fact, he and other bankers and executives of forex companies cite the anticipated forex inflows through the auctioning of 3G/4G licences as one of the key factors behind the nervous selling of dollars by those who had amassed them a few months ago, when it looked as if the rupee would never recover.

“Besides, recovery in construction is drawing expatriates’ money into the housing sector. Once they book residential plots or housing units, they would keep sending installments, thereby keeping remittance growth strong over the next few years.”

They also say big growth in large-scale manufacturing of 6.7pc so far, and the granting of GSP Plus status by the European Union would accelerate export growth as well, and provide more support to the rupee.

Bankers and executives of exchange companies say a 10pc plus growth in home remittances, ban on outward cash forex flow exceeding $5,000, and stricter checks on banks and exchange companies by the SBP on their daily forex trading is keeping daily dollar requirements under check, thereby stabilising the rupee.

But given the fact that the current account deficit in July-January FY14 expanded to $2 billion from just $441 million a year-ago, “overoptimistic views on the rupee’s health are somewhat misplaced,” remarks the head of a foreign bank.

“I guess rising stocks on the back of better corporate profits and recovery in the housing sector has led to a kind of panic dollar-selling.”

Those who hold similar views are skeptical about mid-term exchange rate stability. “Whether and how soon the terrorism issue is sorted out is uncertain. Foreign companies would like to see more concrete evidence emerge before they really bring in dollars,” remarked a senior executive of a foreign bank.

“Imports look set to grow faster once Chinese foreign investment starts trickling in, as initially, such investment means import of Chinese machinery and material by investment-recipient countries. So, mid-term rupee outlook is foggy.”