DARNOMICS IN FULL SWING

PKR's winning streak against the #dollar by over 15 rupees in nine straight sessions, cooling off inflation in September by 1.15% MoM along with a slash of Rs12.6 per litre in #petrol prices epitomize Pakistan’s economy as a thriving entity all of a sudden or at least portraying that macros are improving, creating some sort of certainty.

This all started after the news flows regarding Ishaq Dar’s coming back to Pakistan. On September 22, 2022, the #PKR closed at 239.71 per US dollar and since then the local currency has gained back its value by over fifteen rupees in nine straight sessions.

“The brightest rainbows follow the darkest rainstorms”- the quote sums up the state of affairs.

The market started reacting way before he even took charge as a Finance Minister as he believes in a fixed exchange rate regime. Thus the supply started increasing as more people wanted to sell dollars at higher rates.

Known as an interventionist in the currency market, #Dar, in his recent talk with the media told that the rupee is undervalued due to the presence of speculative elements. He warned speculators to set their direction right.

His top priority is to strengthen the rupee, control #inflation and decrease interest rates to revive economic activity. Some reports suggest that PKR may strengthen to 200 per USD under Darnomics.

However, a recent report by #bloombergnews noted that the odds of Pakistan facing a currency crisis in the next 12 months now exceed 50% following #floods that killed thousands of people and displaced millions more.

A Bloomberg Economics risk model showed that the probability of a currency-crisis episode involving a very large depreciation of the nominal exchange rate and extensive depletion of foreign-exchange reserves could climb to about 59% by June 2023 from 29% in August.

Economist Ankur Shukla wrote in a note, “Crop damage and a host of other problems stemming from the disaster all but erase any progress toward stability that came with the IMF’s aid.”

“Much of the progress toward stabilizing external balances has been undone by the floods,” he added.

For returning Finance Minister Ishaq Dar, who’s a known advocate of a stronger currency, the rupee will strengthen to its fair value which is below 200 per dollar. The currency has plunged about 20% this year as the nation’s finances worsened. Pakistan’s optimism since the #IMF loan has faded, with dollar bonds dropping to a record low, the report said.

The nation that has seen swathes of agricultural land and multiple crops damaged is anticipated to spend $3 billion on buying cotton as small factories shut down from a shortage. The burden comes at a time the nation has restricted imports to reduce its trade deficit.

Floods will widen the current-account deficit because of higher food imports and a hit to exports, said Shukla.

The country secured a $1.1 billion loan from the International Monetary Fund in late August to avert an imminent default, but the deadly flooding wrought damages of about $30 billion. Meanwhile, the government has made an urgent appeal for debt relief from rich nations.

Let’s see what will happen to the economy in days to come. Will #Darnomics be able to drop USD below 200 PKR?