Will Pakistan's rupee gain currency in 2019?
The Pakistani rupee is expected to gain stability in 2019 as the country has overcome immediate economic problems with the help of over $14 billion in financial assistance from friendly nations such as the UAE, Saudi Arabia and China, among others.
The latest support came from the visit of His Highness Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, who was expected to sign a $6.2 billion financial support package during his stay in Islamabad on Sunday.
Analysts said a possible standby agreement with the International Monetary Fund by next month will also provide cushion to the rupee.
So far, Islamabad has received a commitment of over $14 billion: $6 billion from Saudi Arabia, $6.2 billion from the UAE and $2 billion from China.
The Pakistani rupee, which last traded at 37.82 versus the UAE dirham, was one of the world's worst-performing currencies, losing 26 per cent from 30.12 in January 2018 to 38 on December 31, 2018. It includes a six-time devaluation in 2018 as the SBP decided against rescuing the falling currency amidst dwindling foreign exchange reserves and a growing trade deficit.
Analysts said the rupee is expected to stage a recovery against major currencies, including the dirham, in 2019, if it secures the International Monetary Fund package to overcome dwindling foreign exchange reserves, improve a weakening fiscal position and reduce the high level of public debt, though financial assistance in the form of cash deposits and deferred oil payments continue to flow from friendly Arab countries.
Analysts believe that the rupee could hit 40 in the coming months unless Islamabad manages to secure funding from the IMF, which will give a breathing space to the new government of Prime Minister Imran Khan.
"For 2019, the Pakistani rupee can depreciate to 40 against the dirham. It looks more on the weaker side," says Rajiv Raipancholia, CEO of Orient Exchange.
Adeeb Ahamed, managing director of LuLu Financial Group, says the rupee can move in the range of 132-144 against the US dollar (between 36 and 39.3 versus the dirham), which is a possible shift of 5 per cent on both sides.
"The basic objectives and moves by the present government will decide much of the currency movement. A focus on transparency and development-oriented projects will certainly bring stability to rupee and can help up firm it up to 132.50 against the dollar. If the global trade war and global economic situation worsen, the rupee could end up testing 144," said Ahamed.
Promoth Manghat, executive director and CEO at Finablr and group CEO at UAE Exchange, foresees the rupee depreciating sharply in the coming months due to a widening trade deficit and shrinking foreign exchange reserves unless the new government secures an IMF bailout package, which might give some stability to the currency this year.
Jameel Ahmad, global head of currency strategy and market research at FXTM, also sees more historic lows ahead for the rupee.
"Investors remain unconvinced that there is a long-standing solution to the structural challenges that continue to surround Pakistan, including a weakening fiscal position and general weak finances, that also include dwindling forex reserves and public knowledge of the high levels of debt that Pakistan owes. Even though the currency has already lost as much as a 5th of its value since late 2017, the woes for Pakistan when it comes to the state of its finances are so extensive that foreign investors would not want to take the risk to invest on its currency at depressed levels," he said.
Factors in 2019
Ahmad claims that IMF and China funding would help Islamabad overcome short-term funding gap but it is not a long-term solution.
"The only real factor that can help Pakistan get out of its position are real structural reforms within its economy. But because of the challenges the new government still faces and lingering issues that the country has experienced in the past, this is going to take a very long time to even implement," he said.
Manghat believes that crude oil prices and global economic trends remain key factors to watch out for in 2019, but it will be the $8 billion bailout package from the IMF that will dictate the future course of the Pakistani currency.
"Additional funding from global financial institutions like the World Bank and Asian Development Bank could also be instrumental for Pakistan to maintain its balance of payments, easing pressure on its foreign exchange reserves," Manghat added. Raipancholia says major factors that will dictate the rupee are a widening current account deficit, the repayment of foreign currency loan taken, reduced foreign inflows to Pakistan and the dollar's persistent strengthening against Asian currencies.
"The concentration needs to evolve around current account balance by promoting exports and reducing imports. Schemes are required to attract deposits and a climate needs to be created to boost the confidence of foreign investors so that there can be more foreign investments," he said.
Ahamed says the government objectives and moves by and large will dictate the movement of the rupee in 2019.
"People have great expectation from the present leader and in fact there is room for growth and development. Talks with the IMF will also be a crucial factor that will determine the Pakistani currency's movement in 2019," he added.