The recent significant gains made by the Pakistani currency against the US dollar will be short-lived as the recovery will fade due to financing shortfalls as predicted by Goldman Sachs Group Inc., Bloomberg reported Thursday.
The rupee became the top-performing currency, making a substantial recovery in September after dropping to record low earlier in the same month on the back of a crackdown on illegal dollar trade by the interim government.
“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 and bilateral financing to support the external balance,” Goldman analysts led by Kamakshya Trivedi wrote in a Wednesday report.
“The market will continue to require a premium for Pakistan’s rupee ahead of elections.”
The rupee has surged almost 9% since late August, making it the best performing currency globally after Afghanistan’s afghani, as authorities cracked down on the illegal dollar trade.
But risk remains as investors brace for possible unrest as the nation prepares to hold national elections in the first few months of next year.
Inflows from exports and remittances also remain muted, making the nation more dependent on foreign aid from countries in the Middle East as well as China for dollar flows.
An IMF team is scheduled to visit Pakistan next week to review the nation’s economic performance ahead of a loan disbursement as part of its $3 billion bailout programme.
Analysts believed that the rupee is likely to trade in a narrow range of 275-285 per dollar until at least the next tranche of the IMF’s loan programme is finalised.
According to dealers, the currency recently lost ground against the greenback as a result of an increase in demand for dollars from importers, while exporters’ dollar sales slowed as they expected the rupee to settle at its current levels in the coming days.