Government Planning Upcoming Budget with Exchange Rate of Rs. 295/$
The federal government has decided to base the upcoming fiscal year’s budget on an exchange rate of Rs. 295/$, according to Finance Ministry sources reported by ProPakistani.
This new rate is Rs. 10 higher than the Rs. 285/$ set for the current fiscal year. Although the Finance Division did not explain why the new budget is based on an exchange rate Rs. 17 higher than the latest interbank rate of Rs. 278/$, it is believed that the government aims to stabilize the market and prevent a potential exchange rate collapse in FY2024-25.
The increase in the dollar rate is expected to drive headline inflation in the next fiscal year. However, the higher demand for Pakistani products globally is projected to boost foreign exchange earnings.
The depreciation of the Pakistani Rupee will affect development spending on foreign currency and petroleum products, making imported goods more expensive. Consequently, the trade deficit is expected to decrease due to reduced import demand.
Setting the dollar rate helps estimate foreign aid, payments, and loans in rupees. However, this estimate contradicts Finance Minister Muhammad Aurangzeb’s April 2024 statement that the PKR was stable.
Sources further mentioned that a market-based exchange rate will be implemented according to the agreement with the International Monetary Fund. The higher dollar rate raises concerns about increasing external debt, import bills, and prices of imported food items.
The new budget exchange rate of Rs. 295/$ likely reflects the expected value of the rupee in the coming months. These new budget figures may help authorities reach a staff-level agreement with the IMF on a new, larger bailout soon.
Aurangzeb stated in March that an agreement on a new loan program is expected by the end of the current fiscal year, by June 30.
