No pains, no gains. This edict well applies to the current economic situation which has started signs of recovery after remaining in the dock for the last few years. The biggest parameter to measure this recovery is the rupee's continued recovery streak against the US dollar and the recovery by the Pakistan Stock Exchange which has started gaining points after points in recent days after undergoing record losses during the last two months.

According to media reports, the Pak currency took another big strike by gaining another Rs2.54 against the dollar in the interbank market on Aug 10 which is not only an uptrend but a sign of recovery for the Pak economy. On the one hand, the demand for dollars has slowed down in the market while on the other hand, the sellers are shying away from doing business. The Pakistan Stock Exchange (PSX) continued its positive momentum on Wednesday, gaining over 550 points in early morning trade.

On the other hand, the PSX website showed that the benchmark KSE-100 index had risen by 554.29 points, or gained 1.32 percent, to touch the 42,650.53 points after suffering colossal losses in recent weeks. This macroeconomic stability trend is obviously due to hopes that the IMF tranche is about to become a reality soon. Moreover, the stock market has risen due to the expected investment from the UAE which is a good omen. Economic experts see greater macroeconomic stability in the offing after IMF programme resumption which is due later this month. The rupee's gradual strengthening and stabilization are also having a positive impact on the stock market as its confidence has risen with the recovery track of Pak currency which is evident from the fact that Stocks have gained precious and the much-needed 877 points. 

It is hoped that with the release of IMF tranche, the market will make gain further points as investors' eyes are fixed on the start of inflow of foreign currency into Pak accounts and that is expected to start soon once the IMF tranche arrives.  Analysts say that the IMF funds inflow will take some time as the meeting is scheduled for later this month, but it's mainly due to the start of inflow of the re-investment of Chinese loans to eh tune of six billion dollars which resulted in a little bit stabilization of the Pak economy.

 As a matter of fact, there are a number of factors for this happy discourse but mainly it is the drastic cut in import bill which has a pleasant effect on the currency market.   The import bill for July was recorded to be substantially lower as compared to the previous month and this has resulted in reducing the country's trade deficit. A rising trade deficit puts rupees under extreme pressure and currency continues to slide down against major currencies but when the trade deficit is under control it, in turn, leads to easing the pressure on the Pak currency. Another big factor that has helped the rupee to start recovery is the substantial decrease in import payments which have dropped as all letters of credit for oil in July were cleared and all the open positions by exporters were also closed. 

Financial experts and analysts report that the country has record stockpiles of POL and it is expected the oil-related payments during the current month would register a drastic decrease which in turn would have a further positive impact on the rupee's recovery from its earlier losses.  With the improved economic indicators and fundamentals, it is going to register further gains. However, one thing is for sure it cannot revert back to its earlier position of last year or where it was some years back.  As reported, the import bill in July 2022 is reported to have come down to $4.86 billion,  less by over 38 per cent, as compared to last month.

And the bigger coincidence is the narrowing of the trade deficit to $2.64bn, with a drastic decrease as it is down by 46.77pc as compared to the previous month.  On the other hand, analysts say that the government will have to keep a check on dollar smuggling into Afghanistan as it was also a factor in the rising of the dollar's prices.

Meanwhile, with the stabilization of the Pak rupee amid unpreceded inflation of around 14 per cent, the demand for fuel and cement sales slowed down and this is also a positive factor that in turn can have a positive impact on the PKR.   Meanwhile, the positive statements from the IMF regarding Pakistan's compliance with its demands are also going to give further impetus to overall economic recovery in the country as investors will come into action and the business and investment activities will flourish which in turn will have a positive impact on the overall economic indicators and fundamentals.

In fact, the uncertainty on the economic front is going to subside; for a while, as clarity is going to restore on this front. Meanwhile, the Pakistan Stock Exchange is also in a recovery mode, which is evident from the Wednesday trading experience.  With the falling prices of crude oil in the international market together with hopes for IMF tranche release, the PSX is going to remain in an upbeat mood in months to come. 

The market confidence is bound to rise in the coming days, due to the fall in oil prices in the increasing piles of inventory which in turn will have a favorable impact on the current account and result in easing of pressure on Pak current to a greater extent.  And once the economic fundamentals improve, the friendly countries are also going to release funds in Pak accounts as currently, they are in constant fear due to the falling value of Pak current against its peers' values.

 It may be mentioned here that the rupee suffered huge losses last month which sent waves of shocks and despair among traders and investors. Still, the reverting back of Pak rupee is a big recovery in these times of unprecedented economic crisis.  But these latest recovery signs have set a positive trend for overall improvement of economic indicators which can be felt in the coming months.

Published in The Daily National Courier, August, 10 2022

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