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Pakistani rupee likely to stay stable as remittances set to reach $29.8 billion in 2024-25

Government's crackdown on foreign currency smuggling led to a convergence of official and informal rates, stabilising the rupee

Published: Sun 13 Oct 2024, 10:31 AM

Updated: Sun 13 Oct 2024, 1:08 PM

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Pakistani currency notes. Photo: File

Pakistani currency notes. Photo: File

Remittances from overseas Pakistanis are estimated to rise to $29.83 billion during 2024-25 compared to $28 billion in 2023-24.

According to the International Monetary Fund's latest estimates, the strong inflow of remittances has helped reduce the current account deficit and brought stability to the foreign exchange market, trading around 275-280 against the US dollar for quite some time.

"Forex market conditions have remained relatively calm, with the rupee continuing to be stable at around 280 per US dollar, and spreads between forex rates in the interbank and parallel markets remaining narrow. The external position of Pakistan in the 2023 fiscal year was broadly in line with the level implied by medium-term fundamentals and desirable policies," IMF said.

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Currency dealers project that the rupee will remain stable in the coming week, buoyed by sufficient dollar supplies and a steady increase in foreign exchange reserves.

This week, the local currency experienced slight fluctuations in the interbank market. It closed at 277.64 per dollar on Monday, dipped to 277.79 on Thursday, but rebounded to finish at 277.63 on Friday.

Government crack down

The narrowing of official and hawala (informal) rates has stabilised the rupee against the dollar after the government's crackdown on the smuggling of foreign currencies.

Remittances are a major lifeline for South Asian countries, helping them plug the gap in payments for imports and meet demand from importers for the payments.

A large number of Pakistanis migrated and relocated to other countries such as the UAE, Saudi Arabia, Europe, and the US in search of greener pastures due to the lack of job opportunities in the South Asian country.

More than 230,000 Pakistanis relocated to UAE in 2023 alone. The UAE was the second top destination for Pakistanis — who accounted for 26.77 per cent of the total number of people who migrated from South Asian countries in 2023, according to the Bureau of Emigration and Overseas Employment (BE&OE) and Overseas Employment Corporation (OEC).

During the first quarter of the 2025 fiscal year, Pakistan received $8.8 billion in remittances, an increase of 38.8 per cent year over year.

Last month, the IMF approved a $7 billion loan to cash-strapped Pakistan. The first instalment of $1 billion was to be received immediately.

IMF projected a real GDP growth rate of 2.4 per cent during the 2024 fiscal year and 3.2 per cent for 2025. After peaking in 2022-23 at 29.2 per cent, inflation in the South Asian country is expected to drop to 23.4 per cent in 2023-24 and 9.5 per cent in 2024-25.

"The recent marked decline in inflation is very welcome, allowing the State Bank of Pakistan to lower the policy rate while maintaining an appropriately tight monetary stance. The buildup in forex reserves should continue, supported by inflows under the Extended Arrangement, as well as price discovery in the interbank market to help buffer external shocks, attract financing, and protect competitiveness

and growth. Strong action to address undercapitalised financial institutions and, more broadly, vigilance over the financial sector is needed to ensure financial stability," said the global financial institution.

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