That time when you reach in to your old coat and are surprised to know a stack of money in one of the pockets… that’s how analysts reacted to the rise of Pakistan’s $787mn forex reserves. The mystery inflow, with absolutely no mention from the authorities of the source, got everyone talking.
Sentiment gets better
The increase, along with the expected tranche of International Monetary Fund (IMF) and other multilateral flows, would typically bode well for Pakistan. If multilateral flows keep going on, our external funding gap will be a non-event.
Lessons learnt from 2023
But the year 2023 for Pakistan, was close to bankruptcy, and by borrowing more money from internarial monetary organizations, we may have stabilized the ship but not addressed the root causes. Some traction can be found in terms of tax filers, efforts for privatization, encouraging Foreign Direct Investment (FDI) etc., but with fresh elections five 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 crises, and as Rupee redeemed from 310s to 280s, the panic subsided. It wasn’t by letting the Rupee find its true market rate. While the same is true for higher interest rates, it is not practical to cut rates when inflation is a major problem. The State Bank of Pakistan (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 writ of law.
Currency Outlook
If all goes politically well, we will see Rupee range bound for January. While for later, it will significantly rely on how/and if the elections transpire. But there is a realization now that any abnormal devaluation of the Pak rupee snowballs in to a full-blown avalanche, and this should keep 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 world over, with S&P, Nasdaq, Argentina & India growing by 24%, 54%, 70% & 17%.
Fed Rates & Emerging Markets
The current market consensus points toward lower interest rates in developed nations next year, with both the Fed and the ECB anticipated to make rate cuts. This bodes well for emerging markets as more capital inflow over there. With a number of new incentives, Pakistan may also benefit from this trend.
Due to this, 2 key trends are anticipated, 1. Stock markets will continue their sizzle 2. Dollar index will drop to below par.
Other key forecasts
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 its lackluster run
– Modi/BJP & Putin will win their elections
– Brazil with its huge investment in offshore drilling will become a major oil producing country
But don’t take these predictions seriously, as the majority has forecast a recession for 2023 which never happened.
The writer is a Former Chairman and CEO of PIA. Former Federal Minister for Industries and Production.
