Why is the Pakistani currency failing miserably?

The Pakistani rupee had been falling consistently against the US dollar. Of this continues, the government might soon default on its external debt.

The Pakistani rupee has been falling against the USD for 5 continuous years now. The country has come to a point where it might soon even default on the repayment of its external debt. The Pakistani government had even struggled to get some aid from the International Monetary Fund. Besides that the country has been facing domestic political turmoil and has been subject to the wrath of the FATF for supporting terrorism and money laundering.

Here’s a summary of PKR against dollar

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  • 2018: $1= ₹108
  • 2019: $1= ₹140
  • 2020: $1= ₹154
  • 2021: $1= ₹160
  • 2022: $1= ₹200
  • 2023: $1= ₹308

After the Pakistani government imposed a ban on illicit dollar trade, the currency improved marginally but is still way behind its peers and low enough to pose a likely risk of default.

It is pertinent to note here that while other global currencies such as those of South Korea, Thailand and India have fallen tok, it has been on account of geopolitical situations such as Russia-Ukraine war and the interest rate hikes by Federal Reserve in the USA.  It’s a part of global trend. However, the decline in Pakistani rupee wasn’t just due to the global affairs but also due to pathetic domestic management and immense corruption. Thus, the decline has been much rapid and long-term.

In absolute terms, Pakistani rupee is a much weaker currency as compared to currencies of other developing nations such as the Indian rupee (₹83=$1) and Brazilian real ( 5 real= $1). Thus, Pakistan’s troubles are unlikely to end soon.