According to a Pakistani Economist Mr. Muzammil Aslam, the Pakistani Rupee has been the best performing currency for the first three months of 2021, against the US dollar.
He also mentioned that though this is cause for celebration, the main concern is the sustainability of this value of the Rupee.
PkR has been the World best currency against USD from January 1st to March 31st. It’s good to celebrate but equally concern to maintain the competitiveness. I’m on for gradual changes than abrupt. @StateBank_Pak pic.twitter.com/Dw3AsPrlqW
— Muzzammil Aslam (@MuzzammilAslam3) March 31, 2021
The rupee has strengthened on the back of increased inflow of foreign currency in the form of remittances and countries’ financial situation’s improvement as the three top lenders of the world released money to the country.
Read More: Remittances and industry backed rupee hits back at dollar
Over the past week, Pakistan has received IMF’s third tranche of $500 million, have received funding from the World Bank of $1.3 billion for different projects, the Asian Development Bank has invested $300 million into a hydropower plant and lastly, Pakistan has borrowed $2.5 billion in Eurobonds.
All of these are positive steps towards the gain of investors’ confidence in the currency.
According to analysts, the rupee may peak somewhere between Rs150 and Rs152 against the dollar under the current cycle of gains. It seems it will remain stable between Rs152 and Rs155 by the end of June 2021.
The rupee has gained 4.09% to Rs153.55 against the US dollar during the day since the opening level of January 1, 2021, according to the data shown in the tweet above.
It is also one of the four world currencies that have posted gains versus the greenback together with the Canadian dollar, British Pound, Saudi Riyal, and the Norwegian Krone.
There are many other institutional and market-based factors that have led to this appreciation of the Pakistani Rupee becoming the best performer.
Firstly, the introduction of institutional factors like Roshan Digital Accounts (RDAs) has increased the demand for local currency as people are sending money to Pakistan in these accounts. The increased demand has led to the appreciation of the currency.
Additionally, the FDI has been high with the introduction of a new scheme under the Naya Pakistan Certificate, government securities with higher interest rates than those offered in the international financial institutions. This has led to increasing foreign exchange reserves, another currency stabilizer.
Another factor for the increase in the use of these official channels by the Pakistanis abroad is the reduction in Hawala and Hundi. This is because of the restriction in air travel to GCC countries like Saudi Arabia and UAE. This corresponds with the fact that these countries are the biggest contributors to RDAs.
If all of these factors keep contributing to the economy, the Pakistani Rupee is poised to remain stable in the medium term. However, at the start of the next fiscal year, the local currency is expected to depreciate because of increased imports of capital goods (machinery, etc) to set up industry in Pakistan.
However, if indeed the import of capital goods increases in the country, in the long run, it will be beneficial for Pakistan.