Despite improvements on the external side, the PkR exchange rate has experienced rising distress in previous months, slipping by 0.8% against the US$ in Dec’09, higher than average (preceding 6 months) depreciation of 0.5% per month. While the upcoming payment of US$600mn on maturing Euro bonds and imminent reserve erosion has added to exchange rate volatility, Finance Minister Mr. Shaukat Tarin reportedly announced yesterday that the US will release overdue Coalition Support Funds of US$350mn in Jan’10. If these funds materialize in this month, it should partially alleviate concerns regarding the stability of PkR exchange rate. However, the sustained decline in remittances in the past three months clearly signifies that inward remittances have already peaked. This reduces the economy’s deficit financing capacity in a scenario where import demand will likely rise in tandem with a pickup in economic activity. In this report we assess the monthly core debt financing gap and quantitatively assess the impact of oil prices on the trade deficit.
AKD Research
January 21 2010 |
