Pakistan is once again grappling with a severe currency crisis. The rupee has continued its downward spiral, breaking record after record against the US dollar and other major global currencies. The persistent freefall of the Pakistani rupee is more than just a number—it’s a reflection of deep-rooted economic challenges, political instability, and structural vulnerabilities.

This comprehensive piece explores the key causes of the rupee’s continued depreciation, its far-reaching impact on the economy and everyday life, and what the future could hold if the trend isn’t reversed.

The Current Picture: A Currency Under Pressure

As of April 2025, the Pakistani rupee is trading at around PKR 310–315 against the US dollar in the open market, marking one of the lowest points in the country’s history. This decline is not isolated to the dollar. The rupee has also weakened sharply against the Euro, Pound, UAE Dirham, and Chinese Yuan.

Compared to a few years ago—when it hovered around PKR 150–160 per dollar—the depreciation has been dramatic and relentless.

Why Is the Rupee Falling?

1. Chronic Trade Deficits

One of the primary drivers of the rupee’s fall is Pakistan’s persistent trade imbalance. The country imports more than it exports, relying heavily on foreign goods such as fuel, machinery, and consumer products. With a higher demand for foreign currency to pay for these imports and not enough export income to balance it out, the rupee continues to weaken.

2. Debt and Foreign Payments

Pakistan has billions of dollars in external debt. A significant portion of the country’s earnings goes toward servicing this debt, which includes paying interest and repaying loans. To meet these obligations, the country must convert rupees into dollars, increasing the demand for the greenback and putting pressure on the local currency.

With rising global interest rates, the cost of borrowing has gone up, making debt repayments even more expensive and adding to the currency strain.

3. Shrinking Foreign Reserves

Foreign exchange reserves held by the State Bank of Pakistan have dwindled to precariously low levels, reportedly around $4 to $6 billion. This amount is barely enough to cover a few weeks of imports. Low reserves reduce the government’s ability to stabilize the exchange rate by selling dollars in the open market.

4. Political Uncertainty

Investor confidence in any country is tightly linked to political stability. Unfortunately, Pakistan’s political landscape has remained turbulent, with frequent leadership changes, protests, and a lack of long-term policy direction. Foreign investors often respond by pulling their capital or avoiding new investments altogether.

5. Market-Based Exchange Rate Policy

As part of the conditions for IMF loans, Pakistan has adopted a market-driven exchange rate model. While this approach aims to reflect the “real” value of the rupee, in practice, it has led to rapid devaluation in the absence of strong economic fundamentals.

The Ripple Effect: How the Rupee’s Fall Affects the Economy

1. Inflation: The Silent Killer

A weaker rupee makes imports more expensive. This includes fuel, food, medicine, and raw materials. As a result, inflation has surged, with prices of everyday essentials rising beyond the reach of the average citizen. Petrol prices, utility bills, and even groceries are now significantly more expensive than they were a year ago.

2. Living Costs Soar

Inflation isn’t just a number—it directly impacts families. With stagnant wages and rising prices, households are struggling to make ends meet. The middle class is shrinking, and more families are falling below the poverty line. For many, daily essentials like cooking oil, wheat, and electricity have become luxuries.

3. Business and Industry Struggle

Industries that depend on imported raw materials are facing higher production costs. Small and medium-sized enterprises (SMEs), which make up the backbone of the economy, are being squeezed between rising input costs and falling consumer demand. Many are being forced to downsize or shut down altogether.

4. Declining Foreign Investment

Foreign direct investment (FDI) is drying up. Investors are wary of a falling rupee, as it reduces the value of their returns. Many are choosing to delay projects or move their capital to more stable economies.

5. Remittances Offer Temporary Relief

One silver lining is that remittances from overseas Pakistanis have become more valuable in rupee terms. However, this benefit is limited and cannot compensate for the broader economic challenges. In fact, global economic pressures and job uncertainties are also slowing down remittance growth.

Government’s Response: Too Little, Too Late?

The Pakistani government and the State Bank have taken several steps to manage the crisis, but the effects have been marginal at best.

– Import Restrictions

To narrow the trade gap, the government imposed strict controls on luxury and non-essential imports. But with a large share of imports being essential—like energy, food, and industrial goods—the impact has been limited.

– IMF Bailout and Reforms

Pakistan continues to negotiate with the IMF for loan extensions and new tranches. However, IMF loans come with tough conditions such as raising taxes, removing subsidies, and floating the currency—all of which are politically sensitive and socially unpopular.

– Currency Swaps and Aid from Allies

The government has sought financial support from countries like China, Saudi Arabia, and the UAE. While this has helped avert immediate default risks, these are short-term solutions that don’t address structural issues.

– Export Promotion

Efforts are being made to increase exports, particularly in textiles and agriculture. However, poor infrastructure, energy shortages, and red tape continue to limit the country’s export potential.

Global Currency Context

The rupee’s fall isn’t only against the US dollar. It’s also losing ground against other currencies:

• Euro & Pound: European imports are becoming more expensive, from machinery to medicines.

• Chinese Yuan: A weaker rupee means trade with China—Pakistan’s largest partner—gets costlier.

• UAE Dirham & Saudi Riyal: These currencies are vital for remittances. While the rising value means more rupees per Dirham, it also highlights the declining global strength of the PKR.

What Does the Future Hold?

The rupee’s trajectory depends on several factors, both domestic and global. While recovery is possible, it won’t be easy or quick.

1. Sustainable Economic Reforms

Long-term stability requires deep reforms—improving tax collection, broadening the tax base, cutting unnecessary expenditures, and investing in productive sectors.

2. Boosting Exports and Industrialization

Pakistan must move beyond being a low-value exporter. This means modernizing its industries, improving quality, and finding new markets.

3. Investing in Human Capital

Pakistan has a large, young population. By investing in education, digital skills, and entrepreneurship, the country can open up new sources of income, especially through IT exports and freelancing.

4. Political Stability and Policy Continuity

Economic growth is tied to investor confidence, which comes from stable governance. Long-term policies and political consistency are critical to restoring economic faith—both at home and abroad.

Conclusion

The ongoing fall of the Pakistani rupee is not just a currency issue—it’s a symptom of broader economic and governance challenges. While external factors like global oil prices and US interest rates do play a role, the core problems lie within: high imports, low exports, poor planning, and unstable leadership.

If Pakistan is to stabilize its currency and economy, it must take bold, long-term steps to reform, rebuild trust, and unlock its true potential. The rupee’s freefall may be alarming, but it can also be a turning point—if the nation decides to act, not just react.