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Rupee’s downward spiral continues unabated, breaches 245 threshold in open market

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  • Rupee has lost over 8.27% in last twelve sessions.
  • Local unit closes at 237.91 in interbank market.
  • Analysts believe rupee is unlikely to reverse downward trend. 

KARACHI: The Pakistani rupee reeled to a record low against the US dollar on Monday, breaching the critical threshold of 245 against the greenback in the open market.

With a fresh decline of Rs4.40, the local currency closed at Rs245.40 against the greenback in the open market.

Meanwhile, according to data released by the State Bank of Pakistan (SBP), the rupee closed at 237.91 after losing Rs1.07 (or 0.45%) as it inches closer to an all-time low of 239.94 hit on July 28.

The fall can be attributed to several factors, including the ongoing surge in dollar demand from local importers, amid the drying dollar reserves of the country and rising import bills in the wake of the worst floods, among others.

Speaking to Geo.tv, Pakistan-Kuwait Investment Company Head of Research Samiullah Tariq cited two major reasons behind the downfall of the rupee which include: import pressure and a severe liquidity crunch.

“The pressure of Peshawar foreign market — led by Afghan trade — is weighing on the local currency as the demand for greenback is more while supply is less,” he said.

In line with the massive decline of nearly Rs8 or 3.7% registered last week, other analysts also expect the local unit to hit a fresh all-time low against the US dollar this week.

Financial pundits believe that the rupee, which lost over 8.27% of its in the last twelve consecutive trading sessions, is unlikely to reverse the downward trend and may depreciate more value.

In a major economic development, the Saudi Fund for Development (SFD) on Sunday confirmed the rollover of $3 billion deposits maturing on December 5, 2022, for one year, said the State Bank of Pakistan (SBP) on Sunday.

However, analysts believe that the announcement is unlikely to alleviate pressure on the rupee, especially since there will be no material impact on the country’s foreign exchange reserves.

Commenting on this, Tariq said: “The market did not see the direct impact of the SFD development because it was just the government’s attempt to maintain foreign exchange reserves.”

The rupee has lost 13.90% of its value during the ongoing financial year of 2022-23. However, it shrank 28.81% in the calendar year 2022 as the demand for the US dollar remained high in the market.

Tariq believes that the rupee-dollar parity will improve within a month as a decline in international oil prices and prudent government policies will give the local unit a direction to move upwards.

Markets to normalise within 15 to 20 days: Miftah

A day earlier, Finance Minister Miftah Ismail said that the global markets were “jittery” about Pakistan, given the economy had suffered at least $18 billion in losses after the floods, which could go as high as $30 billion.

“Yes, our credit default risk has gone up, and our bond prices have fallen. But, I think within 15 to 20 days, the market will normalise, and I think will understand that Pakistan is committed to being prudent,” he had said.

Pakistan’s next big payment — $1 billion in international bonds — is due in December, and Miftah said that payment would “absolutely” be met.

Central bank reserves stand at $8.6 billion, despite the influx of $1.12 billion in IMF funding in late August, which are only enough for about a month of imports. The end-year target was to increase the buffer up to 2.2 months.

Miftah said Pakistan will still be able to increase reserves by up to $4 billion, even if the floods hurt the current account balance by $4 billion in more imports, such as cotton, and a negative impact on exports.

However, he estimated the current account deficit will not increase by more than $2 billion following the floods.

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Prior to the budget address, the PSX-100 index rebounds following a continuous fall for 7 straight days.

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The Pakistan Stock Exchange rebounded after a continuous decrease of 7 days and surpassed the threshold of 73,000 points, experiencing a surge of more than 500 points in the benchmark.

The PSX Tuesday experienced a decline of more than 650 points, potentially due to tax measures being considered in the federal budget for the fiscal year 2024-25.

The investors are concerned about the State Bank of Pakistan (SBP) reducing the interest rate, as well as the unresolved circular debt, which has increased to over Rs5.3 trillion.

The KSE-100 index concluded the day with significant losses, at its lowest point.

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Pakistan experiences substantial expansion in the information technology sector.

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Pakistan experienced significant development in the exports of its IT sector, reaching a total of $2.283 billion, as stated in a recent Economic Survey Report.

The increase in exports emphasized the rising global demand for IT services from Pakistan and the sector’s impact on the national economy.

The survey demonstrated that IT freelancers contributed $35 million in remittances, highlighting their significance in the IT industry.

The study data indicates a significant rise in the number of broadband and telecom customers nationwide, with broadband users reaching 135 million and telecom users growing to 194 million.

Earlier this week, the federal government has suggested a substantial 357 percent rise in the budget for the IT sector for the fiscal year 2024-25.

As to reliable sources, the Ministry of IT has been granted a budget of Rs 27.43 billion in the development budget, out of which Rs 6.28 billion has been allotted for the implementation of 15 new projects.

The government has additionally suggested allotting Rs 21.15 billion for projects that are currently in progress, as well as Rs 3.5 billion for the Digital Economy initiative.

Additional noteworthy allocations consist of Rs 1 billion for fostering innovation in the IT sector, Rs 50 million for the digitalization of the national assembly, and Rs 300 million for the implementation of smart office projects in government ministries.

The government has additionally suggested investing Rs 9.92 billion for the Islamabad Technology Development Park and Rs 6.78 billion for the creation of an IT park in Karachi. The budget additionally comprises a proposition for an allocation of Rs 1 billion for the Cybersecurity Fund for the Digital Pakistan initiative.

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Pakistan will unveil its Rs18 trillion budget today.

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The budget will be presented by Senator Muhammad Aurangzeb, the Federal Minister for Finance and Revenue, on the floor of the National Assembly.

The government sources stated that the budget will focus on alleviating the hardships faced by the people, revitalizing the agriculture sector, advancing information technology (IT), and enhancing exports.

The administration asserted that the budget will encompass not only fiscal management and revenue mobilization, but also measures for economic stabilization and growth, reduction in non-development spending, job creation, and people-friendly policies aimed at achieving socioeconomic prosperity for the country.

The preparations for the announcement of the federal budget for fiscal year 2024-25 are progressing actively and in accordance with the specified dates.

The budget is being formulated through extensive collaboration among all the departments and ministries responsible for budget-related activities, encompassing the presentation of the budget before Parliament and the initiation of the Economic Survey.

It is important to note that the budget is being presented while Pakistan is in discussions with the International Monetary Fund (IMF) for a potential package of up to $8 billion.

Finance Minister Muhammad Aurangzeb presented the Economic Survey of Pakistan 2023-24 on Tuesday. According to the survey, the country’s gross domestic product (GDP) grew by 2.38 percent, surpassing the projected objective of 2 percent.

During the launch event of the Economic Survey of Pakistan 2023-24, Federal Minister for Finance Senator Muhammad Aurangzeb stated that despite difficulties, the country has made substantial advancements in attaining macroeconomic stability. Notably, there has been a remarkable 30 percent increase in revenue collection, a decrease in the current account deficit, a reduction in inflation, and a stable currency.

The finance minister stated that this position demonstrated a significant reversal from a fragile economic state, marked by a 0.2% fall in GDP, a 29% devaluation of the rupee, and a reduction in foreign exchange reserves, which had decreased to a level sufficient to cover only two weeks of imports.

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