The Pakistani rupee continued its downward trend on Tuesday, closing at PKR 278.67 against the US dollar in the interbank market. This depreciation, though slight, underscores the mounting pressure on the currency due to increasing import payments and declining foreign exchange reserves.
Currency experts attribute the rupee’s weakening to heightened demand for dollars driven by Pakistan’s growing import bill. According to data from the Pakistan Bureau of Statistics (PBS), imports surged by 17.44% in December 2024, with the total import bill climbing to $5.29 billion compared to $4.50 billion in November 2024. This sharp increase in import expenditures has intensified dollar demand, further straining the rupee’s value.
Adding to the challenges, Pakistan’s foreign exchange reserves experienced a decline, reducing the State Bank of Pakistan’s (SBP) ability to stabilize the currency. As of December 20, 2024, reserves fell by $262 million, dropping from $16.633 billion to $16.371 billion. This depletion has limited the central bank’s capacity to intervene effectively, contributing to the rupee’s volatility in the exchange market.
Despite these setbacks, there are indications of potential relief for the rupee. The United Arab Emirates (UAE) has reportedly agreed to roll over $2 billion in loans, a move expected to restore market confidence and provide a cushion for the domestic currency. The rollover could ease some of the immediate pressures on the exchange rate, offering temporary stability.
In addition to external support, Pakistan’s current account performance has shown significant improvement. From July to November 2024, the country posted a surplus of $944 million, a notable shift from the $1.68 billion deficit recorded during the same period in 2023. This improvement reflects better fiscal management and a more balanced external account, which could contribute to stabilizing the rupee over the medium term.
Remittances from overseas Pakistanis have also provided a much-needed boost to the country’s financial health. During the first five months of the fiscal year 2024-25, remittances surged by 34%, reaching $14.77 billion compared to $11.05 billion in the corresponding period of the previous year. This inflow of foreign currency has helped alleviate some external financing pressures, enhancing liquidity and supporting the rupee’s outlook.
While the rupee faces ongoing challenges due to elevated dollar demand and declining reserves, the combined effects of UAE loan rollovers, improved current account metrics, and robust remittance inflows could provide much-needed relief. Analysts remain cautiously optimistic that these factors will help stabilize the currency in the coming weeks, though the broader economic environment will continue to influence its trajectory.
As Pakistan grapples with external pressures, these developments highlight the importance of maintaining a delicate balance between fiscal discipline and economic growth to ensure long-term currency stability.