According to Renaissance Capital, Pakistani Rupee has been declared the cheapest currency in South Asia. The recent devaluation of rupee has dropped it 4% below its long-term average rate from 1995 to 2018.
Pakistani Rupee has never been 13% weaker equivalent to PKR 147 to its REER the real effective exchange rate since 1995. But now it is possible that Pakistani Rupee can fall to that level as predicted by Renaissance Capital.
According to Renaissance Capital, Pakistan is among the three most exposed emerging markets. Turkey and Argentina are the other two most vulnerable market. An investor said that the International Monetary Fund (IMF) is looking for the rupee to fall to Rs 147 against the dollar. That will take it to a 13% drop to long-term average rate.
IMF has predicted that Pakistan’s present account deficit will drop to 5.3% of GDP in 2019 from 5.9 of GDP in 2018. Also, IMF has predicted the budget deficit will increase to 6.5% of GDP in 2018, 6.9% of GDP in 2019 from 5.7% of GDP in 2017.
Renaissance Capital report said, “Argentina has a currency that is now 20 percent cheap to fair value, and the IMF assumes this will already help reduce its current account deficit from 4.9 percent of GDP in 2017 to 3.7 percent of GDP in 2018 and 3.2 percent of GDP in 2019.”
Also, it cautioned by saying, “Turkey has a currency that is about 40 percent cheap to its long-term average, and the IMF assumes the CA deficit will shrink from 5.7 percent of GDP in 2018 to 1.4 percent of GDP in 2019. To get to this extreme level, would require the PKR to weaken to around Rs210.”