Analysts at Goldman Sachs Group Inc, a global investment bank and financial services company, have warned that gains in Pakistan’s rupee, which emerged among the world’s top-performing currencies in the past two months, will be short-lived owing to its financing risks, reported Bloomberg on Thursday.
“The recent appreciation of the Pakistani rupee will likely be short-lived, given soaring interest costs and only short-term arrangements with the International Monetary Fund (IMF) and bilateral financing to support the external balance,” Goldman analysts, led by Kamakshya Trivedi, were quoted in a Wednesday report by Bloomberg.
“The market will continue to require a premium for Pakistan’s rupee ahead of elections,” Trivedi was quoted further.
The rupee recently saw one of the longest appreciation runs against the US dollar, surging around 10% since the start of September, making it the best-performing currency globally after Afghanistan’s afghani.
The improvement came after the State Bank of Pakistan (SBP) announced a list of “structural reforms” last month, targeting the Exchange Companies (ECs).
However, in the past few sessions it has lost around 1%.
The development came after the interim government cracked down on smuggling and hoarding of foreign currency, while the central bank suspended the authorisation of nine exchange companies for noncompliance of rules and regulations and serious violations. Meanwhile, a number of commercial banks announced to establish wholly-owned exchange companies, part of the reforms process in the EC sector.
Countrywide raids were also reported with dozens of illegal currency exchanges barred from running operations and foreign currency worth millions confiscated.
However, “risk remains as investors brace for possible unrest as the nation prepares to hold national elections in the first few months of next year,” the Bloomberg report said, adding that the muted growth in country’s export and remittance inflows have made Pakistan more dependent on foreign inflows from friendly countries in the Middle East as well as China.
Pakistan is set to receive the IMF mission, led by Nathan Porter, on November 2 to discuss the first review of the country’s current $3 billion standby arrangement (SBA), which has been seen as providing stability to the economy in distress.