Rupee to Hit Rs. 310/Dollar in 2025: Fitch Solutions

Fitch Solutions has estimated the State Bank of Pakistan’s policy rate to fall to 16 percent this fiscal year, followed by a decrease to 14 percent next year. Additionally, it predicts the PKR/$ rate to reach Rs. 290 by the end of the year and Rs. 310 by 2025. The credit rating agency’s latest Pakistan Country Risk Report highlights the economy’s precarious state, noting that Pakistan’s ongoing political unrest could jeopardize its economic recovery. The report mentioned that urban protests have significantly hampered economic activities. It said the political climate was fragile, further anticipating former Prime Minister Imran Khan to remain in jail despite several successful legal appeals. The agency sees the federal government to continue implementing IMF-mandated reforms, which are projected to help the economy grow by 3.5 percent in the fiscal year 2024-25. The rating agency warned that another potential flood or natural disaster could significantly threaten the already fragile economy. The report indicates that a continued coalition government will likely hold power for the next 18 months, with no immediate plans for fresh elections. Pakistan is heavily dependent on imports and has a long history of wide current account deficits. The country has built up significant external liabilities. This includes both official debt issued by the state and private debt owed by non-financial corporations. With the exception of the central bank’s (limited) reserves, the economy has few FX assets. The depreciation of the Pakistani rupee in 2022 and 2023 has raised questions about the sustainability of Pakistan’s external debt. The country succeeded in rolling over significant debt payments in mid-2023, but this has not addressed the underlying problem. “While we forecast that Pakistani policymakers – and their international partners – will succeed in avoiding an acute debt crisis, we think that the country’s debt levels will remain elevated over the duration of our forecast period,” the firm stated. Pakistan will remain dependent on imports to meet a large share of its domestic energy and consumer goods needs. While remittances from the country’s large diaspora will help to cover these imports, Fitch expects that the current account will remain in deficit over the duration of our forecast period. “We forecast that the deficit will average 1.1% of GDP between 2024/25 and 2026/27. FDI inflows will not be sufficient to cover this shortfall, which will leave the country dependent on portfolio inflows and foreign borrowing,” the agency added.