The current debacle regarding Boeing displays why you should not prioritize cash flows over stability and safety. Pakistan has somewhat recovered the cash flow crises, courtesy of IMF’s recent tranche, but navigating around the polls period will prove to be a challenge. There are many positive developments in the first few days of the year 2024 including vigorous remittances, prospects of current account surplus, seriousness in tax reforms and privatization, etc. Markets are calmer with price action in the bond markets showing cut in interest rates, rally in Eurobonds and a stronger currency. But what occurs in the next couple of days and months is anyone’s guess, some of which can be reflected in country’s CDS which though lower is still amongst the most elevated across the world
Currency Outlook
As pointed out last week, Rupee strengthened – flirting around the 280/$ figure. The major driver was exporters selling dollars in forward in huge volumes. This was accelerated by stronger reserves and IMF’s BoD endorsement. From the price action previous week, analysts and experts are of the view that the Central Bank is backing the 280 level and any time it trades below 280 may only be provisional. Even during the past period of Rupee consolidation, USDPKR also stayed below 280 for 12 days. We also expect Rupee to be anchored about the 280-level till before the polls with temporary outruns on both sides.
Global Conflicts Escalate
The world renown Richard Kelly in his book had been able to build a relationship between extent of global military conflict and surge in commodity prices. There is a definite escalation of conflict with the opening of the Yemen front, spiking the threat level to global shipping traffic. Apart from freight rates, supply chains and trade flows, the real macro risk from the Yemen quagmire is panic buying in crude, despite its bearish fundamentals. If Brent spikes to above $100 as multiple wars in the region, inflation risk will rise. That would be a catalyst for a spike in 10-year US bonds and a correction in overvalued stocks. It would also increase the complexity level for emerging markets and global trade
US CPI
US CPI clocked 3.4 percent against market expectations of 3.2 percent resulting in higher volatility amongst currencies and precious metals. Now, the market worries that the Federal Reserve would not deliver a first-rate cut at the March monetary policy session.
Foreign exchange inflows via the Roshan Digital Accounts were recorded at 7.195 billion dollars by the end of December 2023, the State Bank of Pakistan (SPB) stated.
At the end of December, 1.538 billion dollars have been repatriated with 4.442 billion dollars used locally. The net repatriable liability at 1.215 billion dollars.
In December, funds received stood at 160 million dollars, while funds of 7 million dollars were repatriated. The funds used locally stood at 120 million dollars. Meanwhile, the net repatriable liability in December was around 34 million dollars.
