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The Pakistani rupee is expected to strengthen against the UAE dirham in the coming weeks as more financial packages will be announced for Islamabad. This would reduce pressure on the government in terms of balance of payment and falling forex reserves.
Rajeev Raipancholia, CEO, Orient Exchange, said the recent developments, especially $6 billion support by Saudi Arabia, has created a positive trend for the rupee and it started to appreciate against the US dollar.
"Initially, the rupee was depreciating due to the lack of support but now the situation is changing and PKR can appreciate and can trade at 125 per dollar [34 against the dirham] soon. Unless Pakistan takes serious steps to increase export and control imports, its current account position will not improve and it will again have serious current account deficit problems. This is a temporary relief only. Much needs to be done," Raipancholia said.
On October 23, Riyadh agreed to give Islamabad $3 billion in foreign currency support for a year and a further loan of $3 billion in deferred payments for oil imports to cope up with its current account deficit. Following the announcement, the rupee made a steady recovery, rising from 36.1 against the dirham to 36.5 within a week.
Pakistan's Prime Minister Imran Khan recently concluded a visit to China where he was assured of financial support from the Chinese government. Similarly, the Pakistan government is reportedly negotiating another aid package with the UAE.
According to PTV News, Imran, who will be accompanied by several ministers, will be in Abu Dhabi on Sunday for a day-long visit at the invitation of His Highness Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces. He is also scheduled to meet His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, during his visit.
Raipancholia noted that the State Bank of Pakistan was encouraging banks in Pakistan to quote market rates or have a more competitive pricing mechanism for exchange companies to get more funds through official channel. "If this is done, hawala system can be reduced to a great extent."
Jameel Ahmad, global head of currency strategy and market research, FXTM, said questions will remain over whether Pakistan will be able to repay the financial support that is being offered by the likes of Saudi Arabia, UAE and China - if Islamabad needs to pay it back - but the receipt of aid should improve the state of fiscal finances at least over the short-term, which is why these headlines are seen as supportive for the Pakistani rupee.
"It is difficult to put a finger on it as per how much rupee could strengthen on improved aid support, mainly because it would be dependent on how much financial support Pakistan receives," Ahmad said.
- waheedabbas@khaleejtimes.com
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