The federal government has made the decision to base the upcoming fiscal year budget on an exchange rate of Rs. 295/$, Finance Ministry sources informed ProPakistani.
The new rate reflects an increase of Rs. 10 compared to Rs. 285/$ set for the current fiscal year. While the Finance Division did not give a reason for basing the new budget at an exchange rate that is Rs. 17 higher than the latest interbank rate of Rs. 278/$, it is understood that the government is aiming to keep market wolves on a leash over fears of a massive exchange rate collapse in FY2024-25.
The rise in the dollar rate will likely contribute to headline inflation in the next fiscal year. However, the increased demand for Pakistani products in the global market is projected to boost foreign exchange earnings, sources added.
Meanwhile, the depreciation of the Pakistani Rupee will impact development spending on foreign currency and petroleum products, as imported goods will definitely become more expensive. Sources added that the trade deficit is expected to fall significantly due to decreased demand for imports on account of how expensive they will be in FY25.
Pertinently, the purpose of setting the dollar rate is to estimate foreign aid, payments, and loans in rupees. However, such an estimate contradicts Finance Minister Muhammad Aurangzeb’s remarks that he made in April 2024 that the PKR was now stable.
Sources further said the market-based exchange rate will be implemented as per the agreement with the International Monetary Fund. As a result of the higher dollar rate, there are concerns that external debt, the import bill, and prices of imported food items at local stores will spike dramatically.
The new budget exchange rate of Rs. 295/$ may reflect the expected value of the rupee in the coming months. Regardless, the new budget numbers based on it may help authorities reach a staff-level agreement with the IMF on a new and much bigger bailout very soon.
Aurangzeb said in March that agreement on a new loan program is expected by the end of the current fiscal year (by June 30).
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