KARACHI: The rupee is expected to remain stable, trading at 282 per dollar by the end of the current fiscal year due to the absence of risks to the external sector and the optimism that the planned foreign currency inflows will materialise on time, a brokerage report said.
“Given that there seem to be no perceived risks to the external position except that it is imperative for the projected external inflows to materialise on time, we do not anticipate any significant pressure on the rupee, going forward,” said Taurus Securities in its report, ‘Pakistan Investment Outlook 2025’, which was published on Friday.
“Consequently, our base case estimates USD to average Rs280.6/USD for FY25, with our period-end forecast of Rs282.8/USD. For FY26, we anticipate USD to trade at Rs300.3/USD by the year-end,” the report said.
“Accordingly, we foresee an average devaluation of 4.7 per cent over the long-term horizon. Moreover, the rupee seems to be fairly priced considering the Real-Effective Exchange Rate (REER) index also,” it added.
“We believe a stable rupee will continue to bode well for foreign investors coming to Pakistan, both in the form of FDI [foreign direct investment] and portfolio investments, going forward,” the report stated.
Finance Minister Muhammad Aurangzeb told the Senate Standing Committee on Wednesday that Pakistan plans to access international financial markets once its credit rating improves to Category B. He noted that the external financing gap for the current year has already been met. He affirmed that the government would only pursue foreign loans when necessary and would ensure that any borrowing from commercial banks is conducted on “our own terms”.
According to the report, Pakistan’s external sector has seen significant improvements over the past 18 months under the guidance of the IMF, laying a strong foundation for sustainable economic growth. The country’s official foreign exchange reserves rose from $4.44 billion in June 2023 to $12 billion as of December 6, 2024, providing an import cover of over two months.
The current account deficit has decreased from 5.0 per cent of GDP in FY22 to just 0.3 per cent of GDP in FY24, with a surplus of $218 million recorded during the first four months of FY25. Moody’s has also upgraded Pakistan’s local and foreign currency issuer debt ratings from Caa2 to Caa3, indicating improved macroeconomic conditions and government liquidity, while also changing the outlook to ‘Positive’.
Consequently, the rupee has remained stable, trading around 280 against the dollar since the start of 2024.
Pakistan has also been able to meet all its external financial obligations, including repayment on Eurobonds, removal of import restrictions as well as foreign profit repatriation amounting to $2.2 billion during FY24, the report said.
The SBP has decreased its forward positions from a peak of $4.5 billion in June 2023 to $3.1 billion as of November 2024. This improvement is largely due to reforms in exchange companies, which have led to a significant increase in official inflows, particularly in workers’ remittances. These changes have helped balance foreign exchange inflows and outflows, manage the trade balance, and alleviate pressure on the current account. Contributing factors also include contained demand pressures, favourable global prices, timely debt rollovers from friendly countries, and foreign exchange deposits from these nations, all of which support the country’s official reserves.
The IMF has urged the continuation of a market-determined exchange rate and expects Pakistan’s current account deficit (CAD) to remain 1.0 per cent of GDP over FY25-29, consistent with the efforts to rebuild FX reserves and buffers, the report said.
The IMF has projected Pakistan’s cumulative gross external financing requirements over FY25-FY29 at $110.5 billion. Apart from the IMF-related inflows to bridge the financing requirements, additional prospective financing to the tune of $5 billion has also been made part of the projections over the course of the IMF’s Extended Fund Facility programme in order to cover the financing gap emanating from the IMF’s safeguards assessment (December 2023).
According to the SBP, Pakistan’s estimated external debt repayments falling due in FY25 amount to $26.1 billion ($4 billion in interest). Out of this, $5.7 billion has been settled, inclusive of $2.3 billion in rollovers. Further rollovers of $14.1 billion are expected during the remainder of FY25. This will leave a serviceable debt of $6.3 billion in the remaining months of FY25.
Moreover, there has been a net reduction of $2 billion in the total debt stock of Pakistan, along with significant maturity re-profiling as short-term debt is being replenished by long-term debt.