KARACHI: Pakistan’s immediate financial outlook appears guardedly optimistic, with no immediate concerns over the $1 billion Eurobond repayment scheduled for April 15, yet concerns remain over the fiscal obligations due at the end of June, a financial terminal said on Saturday.
"These concerns may fizzle out if the IMF [International Monetary Fund] agrees to a new EFF [Extended Fund Facility] package," said Tresmark in a client note.
Pakistan plans to seek a new longer-term bailout loan from the IMF to repay billions in debt due this fiscal year. The government has not officially stated the size of the additional funding it is seeking through a successor programme; however, media reported that Pakistan planned to seek a new loan of at least $6 billion from the lender.
The country has to repay $4.33 billion of debt, including $1 billion of Eurobond, in the last quarter of the current fiscal year.
Analysts said the country is all set to fulfil its commitment to repay $1 billion on its 10-year dollar bond, set to mature in mid-April. The 2024 bond has rallied by more than 160 percent (excluding coupon) in the last 18 months.
“Following this $1 billion repayment of the 2024 Bond, the country's forex reserves will experience a decline,” said Mohammad Sohail, CEO of brokerage Topline Securities. "However, the anticipated IMF tranche of $1.1 billion, likely to be received by the end of April, is expected to restore reserves to the $8 billion mark," Sohail said.
“Furthermore, recent increases in inflows from portfolio investors purchasing shares and treasury bills, coupled with the State Bank of Pakistan's gradual acquisition of dollars from the market, are contributing to the management of regular debt repayments.”
Rupee under pressure
The rupee, Tresmark said, is expected to depreciate by the end of 2024 due to increased imports, external payments, and measures to encourage exporters to boost their exports. The local currency appears to be trading range-bound until June and is expected to weaken gradually in July and December. These projections were made after the International Monetary Fund said that, by the end of this month, its board will finalize the release of its final tranche to Pakistan. The global lender is prepared to start new program discussions with Islamabad in the coming months, according to its representative. “While we see USD/PKR around 280 until June 24, we expect it to rise to 295 by December 2024.”
The rupee is now trading in the interbank market at around 278 per dollar. This week, on Monday, the rupee closed at 277.94 against the dollar, and on Friday, it closed at 277.92.
Tresmark said that there are a few causes for the currency depreciation in the second half of this year, including the necessity for Pakistan to cautiously allow imports in order to neutralize weak growth, which will put pressure on the rupee.
“With higher inflation in Pakistan, the REER [Real Effective Exchange Rate] will have gone up by June and may warrant some devaluation of the currency.”
It states that the government might desire to devalue the currency to provide exporters with some incentive, particularly when the local currency would have been stable in the previous fiscal year.
Typically, the nation devalues its currency to boost the competitiveness and allure of its exports in foreign markets.
According to Tresmark, the global oil and gold prices have gone up by around 5 percent, with oil trading in the $90s and gold trading at its all-time high of $2,360 (despite a higher-than-expected Fed-Federal Open Market Committee report).
“This is a sign that all is not well. The fact that both gold and oil are moving higher simultaneously evidences that this move is supply and not demand-driven, specifically relating to the risk-off sentiment," it said.
While the initial reasoning given for these spikes was a pickup in the Chinese economy and drone attacks by Ukraine on Russian refineries, most analysts now think it is primarily due to Israel’s attack on the Iranian consulate in Syria and Iran’s resolve to take revenge. "Any retaliation by Iran would bring the US into the equation and risk the beginning of a wider, more sinister conflict. The silver lining is that Iran understands the provocation to be a trap and may be more measured in its response,” it said.
"How this conflict unfolds will have enormous repercussions on global financial markets and therefore also on Pakistan. A small hike in petrol prices has already swayed weekly SPI [Sensitive Price Index] prices."