By : Shahzada Ahsan Ashraf
That moment when you reach into your old coat and are surprised to find a stack of money in one of the pockets… that’s how analysts reacted to the +$787 million rise in forex reserves. The mystery inflow, with absolutely no mention from the authorities of the source, got everyone talking.
Sentiment improves:
This increase, along with the expected IMF tranche and other multilateral flows, would typically bode well for Pakistan. If multilateral flows keep coming in, our external funding gap will be a non-event.
Lessons learned from 2023:
But 2023 for Pakistan was perilously close to bankruptcy, and by borrowing more money, we may have stabilized the ship but not addressed the root causes. Some traction can be seen in terms of tax filers, efforts for privatization, encouraging FDI, etc., but with fresh elections 5 weeks ahead, everybody is holding their breath over their continuity.
Post-mortem:
Looking back, the only significant action taken by the caretaker government was to contain the currency crisis, and as the Rupee rebounded from 310s to 280s, the panic subsided. Please note: It wasn’t by letting the Rupee find its (whatever that means in Pakistan’s context) true market rate. While the same is true for high-interest rates, it is not practical to cut rates when inflation is a raging problem. SBP is confident that inflation will fall back to 25% next month due to the rebasing effect, but it would seem improbable without strict implementation of the writ of law.
Currency Outlook:
If all goes well politically, we will see the Rupee range-bound for January. While for later, it will rely significantly on how and if the elections transpire. But there is a realization now that any abnormal devaluation of the currency snowballs into a full-blown avalanche, and this should keep the Rupee under the lid.
Strong performance by KSE100:
KSE100 was one of the strongest performing markets with a 55% gain, though 2023 was a dream year for most stock markets worldwide, with S&P, Nasdaq, Argentina & India growing by 24%, 54%, 70%, & 17%.
Fed Rates & Emerging Markets:
The prevailing market consensus points toward lower interest rates in developed countries next year, with both the Fed and the ECB anticipated to make rate cuts. This bodes well for emerging markets as more capital will flow there. With the right amount of incentives, Pakistan may also benefit from this trend.
Due to this, two key trends are anticipated:
- Stock markets will continue their sizzle.
- The Dollar index will drop below par.
Some of the relevant forecasts for 2024, sourced from around the world, are:
- Gold will surge to $2,400 before consolidating just below $2,000.
- Property markets, led by China, will continue their lackluster run.
- Modi/BJP & Putin will win their respective elections.
- Brazil, with its huge investment in offshore drilling, will become a major oil-producing country.
But don’t take these forecasts seriously, as the majority had forecasted a recession for 2023, which never happened.
(The writer is a Former Chairman and Managing Director PIA, Former Federal Minister of industries and production)
