KARACHI: Despite being surrounded by political and economic uncertainties, the local currency remained stronger against the US dollar in the interbank market.

The exchange rate, which has been a serious cause of concern for the government as well as stakeholders in the economy, remained stable for over two months.

The State Bank of Pakistan reported the dollar rate at Rs279.34 in the interbank market from Rs279.42 the previous day, with PKR appreciating by eight paise on Wednesday.

While currency dealers stated that the exchange rate is being managed to some extent, no objection from the International Monetary Fund (IMF) was heard. The IMF had been critical of the managed exchange rate, and it was one of the main objections raised by the donor agency before signing the $3 billion Stand-By Arrangement (SBA) in July 2023.

Dollar depreciation prompts swift selling of export proceeds

However, several currency dealers mentioned that the slow but regular depreciation of the dollar has convinced exporters to sell their proceeds before receiving less money in the next few days. This approach has enhanced the inflow of dollars into the banking market.

The banking market is also getting support from the open market with high inflows of dollars. The Exchange Companies Association of Pakistan recently reported that exchange companies have sold about $3bn to banks during the first seven months of the current fiscal year.

“There was a political uncertainty in the country due to general elections but there was no economic emergency. The high degree of political uncertainty has not affected the economy as expected by trade and industry,” said Amir Aziz, an exporter of the textile finished products.

Manufacturers and exporters have expressed concerns that the economy could receive disturbing signals after the formation of a new government and the implementation of new economic policies after Thursday’s (Feb 8) polls.

“Surely, the new government would be responsible for the future direction of the exchange rate because there is a consensus among economists that Pakistan needs another IMF package for the smooth sailing of the economy,” said a senior banker dealing with the currency market.

Bankers believe that the ability of the new government to negotiate with the IMF for more loans would help Pakistan and the PKR remain strong with better performance.

Experts believed that the foreign exchange reserves of the central bank, which are about $8.2bn, would not be enough to meet the debt servicing. Pakistan still lacks about $6bn to cover the $24bn required for debt servicing during the entire FY24.

The country hopes to get a rollover of $2bn from China, which is due to be paid in March. It seems the new government would have to work on a war footing to save the country’s prevailing economic status.

Published in Dawn, February 9th, 2024