KARACHI: The rupee is in for a rough ride next year, industry sources and currency experts have warned, insisting that the local currency might face a significant devaluation as its current facade of stability is not backed by economic fundamentals.

To back up their assertion, experts point to the current fiscal year’s data indicating troubling trends.

For instance, remittances dropped by 10.3 per cent year-on-year during the five months from July to November, resulting in a $1.3 billion loss compared to the year-ago period. This decline followed a $4bn decrease in remittances in the last fiscal year.

Export figures are also not encouraging, with proceeds falling 4.4pc to $2.57bn in November and rising by a meagre 2pc during July-November.

Say traders are already factoring in a 5-10pc depreciation in 2024

These dwindling inflows are set against the backdrop of import expenditures that are twice as high as exports during the five-month period, further straining the rupee’s position amid the rising demand and poor inflows of dollars.

“The PKR is facing many challenges. This is why traders are factoring in a 5-10pc depreciation next year as Pakistan suffers from near-zero growth, low productivity, and higher repayments with fewer avenues for raising foreign exchange,” said Faisal Mamsa, CEO of Tresmark.

Atif Ahmed, a leading currency dealer in the interbank market, expressed the same fear, particularly citing poor inflows. He said the current exchange rate was managed with tight control over imports and now it was too hard for the State Bank of Pakistan (SBP) to keep the foreign exchange reserves at $7bn.

“The SBP buys dollars from the market to service debts and keep the reserves at $7bn, but it’s not going to last forever. Inflows like remittances, foreign direct investments (FDI) and export proceeds must rise to arrest the possible decline in the coming weeks,” he said.

While the caretaker government is trying to attract foreign investment, targeting a $100bn influx over five years through the Special Investment Facilitation Council, most experts remain sceptical.

Mr Mamsa points to the lack of trust, credibility and political instability as significant hurdles to achieving this ambitious target.

Though the Election Commission has announced the poll schedule, there is no clarity about the next government and its strategy to boost the economy.

Amir Aziz, an exporter of finished textile products, said, “We don’t know how the new government will tackle this ailing economy under enormous pressure of poor economic indicators.”

He said there was no alignment between the economic growth and the strategy. All efforts, he said, were being made to avoid default, reduce trade and current account deficits and follow IMF directions in every segment of the economy.

“There is no indigenous plan or strategy to improve the country’s economic health, which has been dire for the last 20 months,” he lamented. “Trade and industry find it challenging to keep functioning in the face of 29pc inflation, 22pc interest rate and curbs on raw material imports.”

Published in Dawn, December 17th, 2023