The federal government has decided to base the upcoming fiscal year’s budget on an exchange rate of Rs290 to the dollar, projecting a 3.6% depreciation due to a largely stable external account backed by the International Monetary Fund (IMF) loan, The Express Tribune reported, citing sources.
The Ministry of Finance has instructed government departments to prepare budget estimates for the fiscal year 2025-26 using this exchange rate. This rate will also be used to determine portions of the defense budget related to foreign procurements and debt servicing.
According to the news report, the government has decided to increase the defense budget by 18%, surpassing Rs2.5 trillion, following rising tensions with India.
Additionally, the exchange rate will serve as the benchmark for allocating budgets to Pakistan’s diplomatic missions and the Public Sector Development Programme (PSDP).
The current budget was also based on the Rs290-to-a-dollar rate, and the rupee has largely remained stable. The government plans to revise estimates for the current fiscal year based on an exchange rate of Rs280 to the dollar, following the recent movement in the currency market, where the interbank rate stood at Rs281.56 on Monday.
The IMF, in its statement last week, emphasized that a more flexible exchange rate would facilitate adjustments to external and domestic shocks while aiding the rebuilding of reserves. For the next fiscal year, the IMF expects Pakistan’s gross official reserves to grow to $17.7 billion, enough to cover 2.8 months of imports, a slight improvement over the current fiscal year’s import cover.
The government anticipates a stable exchange rate in the next fiscal year, partly due to a relatively low current account deficit of around 0.4% of GDP, which is less than $2 billion and can be comfortably financed through foreign debt inflows. The IMF projects inflation for the coming year at around 7.7%, further supported by the relatively stable exchange rate.
The State Bank of Pakistan, however, has suggested that the rupee-dollar parity may remain around Rs299 to a dollar in the next fiscal year, a projection the finance ministry has not adopted.
The total national debt and liabilities increased to Rs89.8 trillion by March 2025, reflecting a 10.1% rise from the previous year. The government’s debt surged by nearly 13%, reaching Rs73.7 trillion.
