Currency analysts have raised concerns about potential exchange rate shocks in March, despite a period of stability lasting over two months. Factors such as third-quarter economic performance will play a crucial role in shaping the exchange rate outlook for the remainder of the fiscal year.
Both remittances and foreign direct investment (FDI) have fallen below market expectations, with remittances showing a six percent decline during the first half of the fiscal year. This trend is particularly alarming considering that remittances in the previous fiscal year were 25 percent lower than the preceding year.
Although there has been a slight increase in remittances on a month-on-month basis, market players anticipate decreased inflows due to the upcoming general elections, impacting overall inflows for the fiscal year. The Special Investment Facilitation Council (SIFC) is hoped to boost investment inflows, but significant improvements are expected post-elections and the formation of a new government in Islamabad.
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Of significant concern is the pending final tranche of $1.2 billion from the International Monetary Fund (IMF), which is to be decided in March. The caretaker government remains optimistic about receiving it, but there are indications that a new government may renegotiate with the IMF after the elections.
The new government will face the challenge of convincing the IMF to continue current economic policies amidst promises of economic benefits by political parties. However, such promises may conflict with IMF conditions, potentially complicating future relations with the donor agency.
In this context, the caretaker finance minister has emphasized the need for another bailout package to sustain economic growth.
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