The worst performing currency of Asia is set for another tough year

The Pakistani rupee is set to end the year as Asia’s worst-performing currency and the losses are seen extending into 2024.

The currency has fallen about 20% against the US dollar this year and analysts say its troubles are far from over. BMI expects the currency will fall to 350 Pakistani rupees by the end of next year, while Karachi-based brokerage Topline Securities Ltd. sees it dropping to 324 Pakistani rupees. It closed at 285.64 Pakistani rupees on Monday.

“This looks like a currency that is set to adjust downwards,” said John Ashbourne, global economist at BMI in London, a Fitch Solutions company, citing Pakistan’s high inflation and trade deficit among the factors putting pressure on the rupee.

Pakistan’s high debt payments and an external funding gap are weighing on its rupee. The country was on the brink of a default this year, and falling investments from overseas and Asia’s fastest inflation are adding to its woes. Remittances also stay muted, making it more dependent on foreign aid for dollar flows.

The International Monetary Fund this month agreed to a $700 million payout, helping the nation stave off a default for now. Concerns remain its challenges may extend well into 2024, with the government requiring more aid for its fragile economy.

A dollar shortage may also lead to parallel currency markets that emerged last year after the central bank restricted access to foreign currency to preserve dwindling reserves. As the rupee slumped to a record low in September, the government intensified a clampdown on illegal buying and selling of dollar at a premium to the exchange rate. The sharp gains that followed appear short-lived.

“It’ll be very hard in the long term to convince people to use the official rate if parallel markets give more value for a dollar,” said Ashbourne. “The authorities can sort of push against the tide for a certain amount of time, but they aren’t able to do that sustainably.”

Goldman Sachs Group Inc. warned the market will continue to require a premium for the rupee given soaring interest costs and only short-term arrangements with lenders to support the external balance.

As the nation heads for national polls in February, Topline Securities expects the new government to sign the long-term program with the IMF next year, which could provide relief to the currency.

“Pakistan’s external account vulnerabilities can only be addressed effectively through a new and bigger IMF program,” its analysts wrote in a note this month.