Forex reserves surprise on the upside

That one time when you reach into your old coat and are surprised to find a stack of money in one of the pockets is exactly how analysts reacted to the +$787mn rise in forex reserves. The mystery inflow, with no mention from the authorities of the source, got everyone talking.

Sentiment gets better as this increase and the expected IMF tranche including the other multilateral flows would typically bode well for Pakistan. If multilateral flows keep coming in, Pakistan’s external funding gap will be a non-event.

Lessons learned from 2023

The year 2023 for Pakistan, was perilously close to bankruptcy, and by borrowing more money, it may have stabilised the ship but has not addressed the root causes. Some traction can be seen in terms of tax filers, efforts for privatisation, encouraging FDI etc, but with the fresh elections which are 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 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 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 writ of law.

Currency outlook

If all goes well politically, we will see the Rupee range bound for January. For later, it will rely significantly on how the elections transpire. But there is a realisation now that any abnormal devaluation of the currency snowballs into a full-blown avalanche, which 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 the world over, with S&P, Nasdaq, Argentina & India growing by 24%, 54%, 70% & 17%.

Fed rates and 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. First, the stock markets will continue their sizzle. Second, the 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 lacklustre run
Modi/BJP and Putin will win their respective elections
Brazil with its huge investment in offshore drilling will become a major oil-producing country

By : Shahzada Ahsan Ashraf
Former Federal Minister of industries and production
Former chairman and Managing Director of PIA