KARACHI: The rupee-dollar exchange rate is expected to come under pressure due to higher debt repayments in the first quarter of calendar year 2024, said bankers and analysts.

“With the completion of the nine-month $3bn Stand-By Arrangement with the IMF in March 2024, the dollar may reverse its downward trajectory due to higher debt servicing and likely fall in foreign exchange reserves amid slow inflows,” said a senior banker.

Bankers and analysts said the country is short of $6bn required to meet the debt servicing obligations totalling $24bn for the entire FY24.

“The fundamentals have not changed. Remittances and export proceeds will either decline or remain stagnant,” said S.S. Iqbal, an expert on foreign exchange. The foreign direct investment would remain poor, he added.

Economists believe the general elections on Feb 8 have already created uncertainty about the future economic policies of the next government.

“The investors would not come unless the ongoing political uncertainty comes to an end,” said Atif Ahmed, a currency dealer in the interbank market.

He said the financial market is full of speculations about the future economic and political situation. Foreign investors are always more cautious about their investments and they invest where stability prevails, he said.

The newly established Special Investment Facilitation Council (SIFC) has an ambitious target of $100bn foreign investment in the next five years. Analysts believe the situation for foreign investments under SIFC will be clear after the general elections. However, they said the arrival of Saudi oil company Aramco is a good omen and would restore the confidence of other foreign investors.

At the same time, the rupee continued its winning streak against the US dollar for the last 13 sessions to Rs281.86. However, the gains were meagre compared to the losses it suffered in the calendar year 2023.

The dollar on an annualised basis gained Rs55.43 in the interbank market. In percentage terms, the PKR depreciated by 19.6pc in CY2023.

During the current fiscal year, the rupee recovered Rs25 after hitting an all-time low of Rs307 on Sept 5.

The open market was more volatile during 2023 but the PKR settled at Rs283 after losing Rs50 per dollar. The open market witnessed the dollar price as high as Rs340.

However, the crackdown against the smuggling and illegal currency business helped reduce the dollar price to Rs275, now hovering around Rs285 in the open market. A big jump of $853m was noted in the foreign exchange reserves of the State Bank of Pakistan to $7.8bn during the week ended on Dec 22 on inflows from ADB and World Bank.

However, informed sources said the country will have to repay a huge amount in January bringing down the SBP’s reserves and sending a negative signal to the exchange rate.

Published in Dawn, December 31st, 2023