Karachi July 19 2024: Pakistan will need to allow the rupee to fall 19% against the dollar if it wants to keep the external debt steady and remove all existing import controls, writes bloomberg in it’s report.
“We think this is unlikely. The government will instead lift import curbs gradually and prop up the currency” states the report.
The country’s current account deficit will need to stay at 1.1% of GDP if it wants to keep its dollar debt at the current level, we estimate.
“We calculate that if all import controls were removed, the current account would be in a much higher deficit of $13.8 billion in fiscal 2024, or 3.7% of GDP” bloomberg stated.
“We think the government would keep easing its import controls gradually as it has been doing over the past year under the IMF’s directives. The removal of existing restrictions in a single move will probably be avoided for two reasons” the report states.
First, a sharp rupee depreciation — from the 278-280 range in 1H24 — would fuel inflationary pressures. Inflation is slowing but is still in the double digits. As of June, it was running at 12.6% year on year. The central bank’s inflation target is 6%.
Second, the country’s FX reserves are still not sufficient to allow complete removal of controls. Its current reserves are not sufficient to buy even two months of imports.
