Recent slippage in the value of the Pakistani rupee has fanned chatter over the possibility of a significant fall in the value of the local currency against the US dollar. Au contraire, the stage is set for Pakistani rupee to exhibit resilience, even as international currencies falter against the greenback. Rupee is down on monthly average by 1.8 percent between July and September, driven by lumpy oil payments around August, to the tune of $1.85 billion including deferred oil payments from the May- July period. The payments represent a 50 percent increase over average monthly payments of around $1.2 billion. Considering the fact that oil prices have came down since then; and that some oil payments will be a deferred in the second half of this fiscal year, it is imminent that dollar liquidity will find a cushion in coming weeks; which may help stabilise the local currency. Nonetheless, plagued by balance sheet concerns, the energy sector has lately been importing more refined petroleum in place of crude. Going forward, this trend can be a burden on the oil import bill; an ill omen. Yet, the rupee appears relatively stable compared to other currencies such as the Indian rupee. In India, stock of foreign portfolio investments stands at $85 billion. And with Euro zone crises looming, an average $150 million is moving out of the country, each day. Pakistan had faced a similar crisis back in 2008, when portfolio investment plummeted from about $2.5 billion. However, the country does not have much of a balance left to lose on this front, anymore. The most recent monetary policy statement attributed 90 percent of textile exports growth to pricing. IT can be reasonably ascertained that nullifying the impact of increases in the price of cotton (as witnessed in the last fiscal), would curtail Pakistans export proceeds by $2.5-3 billion this year. But sceptics eyeing cotton exports should also consider the trend in prices of other commodities which Pakistan imports; especially oil. Black gold rates have looked vulnerable of late, as global markets adjust to successive downward revisions global GDP expectations. A fall of $10 per barrel in oil prices would reduce the oil bill by $3.5 billion per annum, keeping the quantity constant. Hence, the impact of the slowdown in the global economy would be marginally positive on Pakistans trade balance. The flagship of improvements in the current account is remittances. Even without including the one-off inflow amounting to $1.3 billion received in August; remittances average about $1 billion per month putting the current account in a comfortable position. While there are few reasons for the currency to show heightened volatility or weakness in the medium term; lately the curb market has appeared anxious but; the open market is a different breed and its clearing price is heavily influenced by sentiments and punting. Recent events such as the oil payments mentioned earlier as well as the growing rift between the US and Pakistan and ongoing negotiations between the country and the IMF have provided some triggers for chasing the dollar in the curb market, in recent weeks. Historically, the rupee has exhibited weakness each time the country approached the IMF for a fresh programme. For instance, the rupee depreciated by 16.4 percent between June and October 2008; when Pakistan negotiated its most recent IMF bailout package; whereas a similar pattern was seen later in July 2009. But this argument appears less relevant for the current fiscal year as the economic and political leadership is considering the termination of the existing IMF programme; eyeing populist measures ahead of the upcoming general elections. Moreover, there appears no immediate need to enter a new programme given that foreign exchange reserves are at a comfortable level, covering 5 to 6 months of imports. The payments due to be paid to the IMF this year; are relatively lower and apparently the government has adequate funds to meet these obligations, without hitting the panic button. The chances of curb market adjusting northward, in favour of the local currency will rise with improved demand supply position in the interbank market. The gap between rupee-dollar rate in the interbank and curb markets will also likely reduce from the current Rs1.5-1.6 per dollar to Rs0.3-0.5 per dollar, soon.
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