Pakistani rupee recovers against UAE dirham, but the trend may not last

Dubai - Analysts forecast that the rupee's recovery will be short-lived, given the tough challenges faced by the new government on the economic front.

The Pakistani rupee has been recovering against the UAE dirham after the victory of Pakistan Tehreek-e-Insaaf in the elections last week, gaining 1.5 rupees, or 4.3 per cent, in just five days.
Pakistan's stock market has also been witnessing an upward trend. The Pakistan Stock Exchange (PSX) on Monday surged 608 points in early trade, reaching 43,395 in the first hour of opening, as it continued its momentum from last week after the conclusion of the general elections.
Analysts forecast that the rupee's recovery will be short-lived, given the tough challenges faced by the new government on the economic front.
"In coming months, the Pakistan rupee can strengthen up to 31.30 versus the dirham, if the expectation about the new government comes true. For exchange rate to be strong, the stability of the government, the expected dollar inflow to the economy, keeping inflation in control, dollar interest rate hike and GDP growth rate are all important. I feel once discounting all these factors by 2018-end, the rupee may depreciate again to 34 against the dirham," said Rajiv Raipancholia, CEO, Orient Exchange.
"Short-term flows aside, it is difficult to see the [rupee] sustaining its pullback for long," Intermarket Securities said in a note. Analyst had told Khaleej Times earlier that the rupee could fall to 38 against the dirham due to poor economic conditions of the country.
The rupee was trading at 35.0 against the dirham on the elections day on July 25. It strengthened by 4.3 per cent since July 25 to 33.50 on Monday afternoon in the UAE. The Pakistani currency had recovered one rupee in just one day against the dirham on Sunday in the UAE market. In the open market in Pakistan, the rupee strengthened to 30.3 against the dirham on Monday.
Raipancholia advised that Pakistani expats in the UAE can wait for some time to see how things are taking shape in Pakistan and wait for 123-124 levels against the dollar to remit.
Vijay Valecha, chief market analyst at Century Financial Brokers, forecast that markets having already priced in the US rate hikes, Pakistani rupee is expected to rally by four to seven per cent against dirham by the end of 2018.
"The current rally in Pak rupee is anticipated to continue as an IMF loan bailout and possible inflows of credit line from the Islamic Development Bank (IDB) has boosted market sentiments. The business community is highly optimistic about the comprehensive economic reform plan envisaged by the new government, which comprises of the economic uplift of the masses, undertaking institutional reforms and regional peace initiatives, along with global image building of the country," Valecha said.
Abdel Kareem Alkayed, country head, UAE Exchange, said with the results of the general elections in Pakistan, the market is upbeat about an economic reform in the country as it looks forward to a stable government.
"As a reflection of this, the Pakistani rupee has appreciated sharply by more than Rs5 against the US dollar in the first few days post the general elections and is expected to rise further in the coming weeks. The business and expat communities of Pakistan pin a lot of hopes on the new government, anticipating positive changes in the country," Alkayed said.
Raipancholia, who is also treasurer at Foreign Exchange and Remittances Group (Ferg) in the UAE, believes repatriation by overseas Pakistanis due to stable, less corrupt and investment accommodative government is key to economy. Plus, increased foreign investment to the economy is also a key factor to strengthen rupee.
When will Pakistan have to go to IMF for bailout?
The State Bank of Pakistan expects the rupee will strengthen if the political situation gets better and a stable government is formed in the country after the elections, said Qadir Bakhsh, additional director, State Bank of Pakistan.
"The rupee's weakness is due to imbalance of imports and exports. Instability will remain unless we resolve this imbalance. As the elections results came out, the rupee appreciated and if the political situation gets better, the rupee will fare better. Hopefully, if there is a political stability after this new government comes into power, rupee can appreciate," Bakhsh told Khaleej Times recently.
Analysts had earlier said that Pakistan's central bank devalued rupee by over 20 per cent in seven months because the IMF wanted Pakistan to let the market dictate rupee's rate and don't intervene in order to obtain loan from the fund.
Bakhsh revealed that Pakistan doesn't need to go to the International Monetary Fund (IMF) for loan if the country can meet its import bill for the six months.
"If we are able to reduce the deficit and exports and forex reserves pick up as a result of more funds inflow from the tax amnesty scheme for Pakistanis, the pressure on current account will ease. If we have six months of imports reserves, then Pakistan doesn't need to go to the IMF," Bakhsh said.
Pakistan's current $9 billion forex reserves can meet import bill for two months only. Many analysts expect Pakistan will turn to the IMF for a bailout, which is expected to be in excess of $12 billion.
Bakhsh said the new political government will decide whether to approach the IMF or not for the loan.
Asad Umar, who is likely to be the finance minister, has showed concerns about the dwindling foreign exchange reserves.
"The crisis is severe and requires measures so urgent that no option can be ruled out," Umar told reporters during a recent interview with Pakistani media.
waheedabbas@khaleejtimes.com