March 28, 2023
PKR Lost 22% During 2022

PKR Lost 22% During 2022

The rupee saw violent swings throughout the year, often hitting its record low against the US dollar, only to finish the year with a significant fall of 22%, marking the worst 12-month period since the global financial crisis of 2008.

The rupee has fallen in 18 of the 22 years since the year 2000, with 2022 being the second-worst year after 2008.

What happened to the currency?

After three finance ministers and an equal number of governors of the State Bank of Pakistan (SBP), it is possible to expect some stability in the currency. The currency will probably still be under pressure in 2023, though. Simple explanation: Pakistan experiences a larger dollar outflow than an inflow. Although the current account deficit may have decreased, it did so at the expense of severe import restrictions and administrative actions that the government says do not constitute market interference.

The currency market will continue to be under pressure due to a delay in the International Monetary Fund (IMF) programme and an inability to get inflows from “friendly countries”—inflows that are primarily band-aid fixes rather than long-term economic solutions.

There are currently three currency markets operating simultaneously: the open market, where foreign currency (especially the US dollar) is in extremely short supply, the inter-bank market, where hardly any trades are reported, and the so-called “black market,” where trades are happening but at prices of Rs255 and higher.

This circumstance encapsulates Pakistan’s economic difficulties. In a nation where the informal market is as large as the formal one, official data and rates are meaningless. As a result, the formal sector ends up paying much more in taxes because it is simpler for the government to repeatedly tap that sector’s shoulders. The tap on the shoulder this year changed into a shot to the skull, though.

IMF programme is key

Future market analysts claim that the IMF program’s restart is essential for the restoration of economic stability.

Siddiqui stated, “The sooner we enter the IMF programme, the better as the continual delay delivers a negative signal to the market.” He added that the program’s reactivation would also increase foreign exchange reserves, which would provide some relief to the currency.