The Pakistani rupee has hit a new record low following the intervention of the military to suppress violent protests that erupted after the arrest of former Prime Minister Imran Khan. On Thursday, the rupee depreciated by 3.3%, reaching an unprecedented exchange rate of 300 against the US dollar, as reported by Arif Habib Ltd.’s foreign exchange desk. Meanwhile, dollar bonds maturing in 2031, which had previously hit their lowest level since November, showed some improvement on Thursday and were indicated at 33.44 cents on the dollar. In response to the violent demonstrations, Pakistan’s government enlisted the support of the military to restore order. This occurred after a judge ordered the detention of Imran Khan, aged 70, for eight days under the custody of the anti-graft agency. Khan’s arrest took place on Tuesday. The ongoing unrest complicates the government’s negotiations with the International Monetary Fund (IMF) to resume their $6.5 billion bailout program, which is crucial to avoiding a default.
The Pakistan rupee (PKR) has experienced significant fluctuations and challenges over the years. There has been a depreciation trend, the Pakistan rupee has generally faced a depreciating trend against major currencies, particularly the US dollar, in recent years. This depreciation has been driven by factors such as economic imbalances, high inflation, fiscal deficits, political instability, and external pressures.
In recent years, the PKR has reached several record lows against the US dollar. In 2018, the rupee experienced a severe depreciation, touching an all-time low of around 160 PKR per USD. This decline was primarily attributed to a widening current account deficit, limited foreign exchange reserves, and the need for external financial assistance. To address economic challenges and stabilize the currency, Pakistan sought financial assistance from the International Monetary Fund (IMF). In 2019, Pakistan entered into a $6 billion IMF bailout program aimed at addressing fiscal and external imbalances. The IMF program required certain measures, including exchange rate adjustments, leading to further depreciation of the PKR.
Exchange Rate Interventions: The State Bank of Pakistan (SBP) has intervened in the foreign exchange market at various points to manage the rupee’s depreciation. These interventions involve buying or selling foreign currency reserves to influence the exchange rate. However, sustaining a fixed exchange rate or preventing excessive depreciation has been challenging due to underlying economic factors. The COVID-19 pandemic had a significant impact on Pakistan’s economy and currency. The PKR faced increased pressure as exports declined, remittances weakened, and foreign investments slowed down. The uncertainty and economic disruptions caused by the pandemic added further volatility to the exchange rate.
It’s important to note that exchange rates are influenced by numerous factors, including economic indicators, government policies, geopolitical events, and market sentiments. The Pakistan rupee’s situation remains subject to these dynamics, and it is crucial for the government to address structural issues and pursue sound economic policies to stabilize the currency in the long term.
The arrest of the former Pakistan Prime Minister, Imran Khan, and the subsequent violent protests can have various implications on the Pakistan rupee (PKR) exchange rate. Political instability and protests can create uncertainty in the financial markets, including the currency market. Investors may become cautious and potentially withdraw their investments from Pakistan or delay new investments until the situation stabilizes. This can put downward pressure on the PKR.
The arrest of a prominent political figure like the former Prime Minister may raise concerns about the rule of law, governance, and political stability in Pakistan. Investor confidence can be negatively affected, leading to a reduction in foreign direct investment (FDI) and portfolio investments. A decrease in foreign inflows can impact the demand and value of the PKR. The protests and unrest can disrupt economic activities, especially in major cities. Business operations may be hampered, leading to a slowdown in economic growth. A weaker economic outlook can impact investor sentiment and result in a depreciation of the PKR.
Pakistan’s negotiations with the International Monetary Fund (IMF) to restart its bailout program can be affected by the political turmoil. The IMF’s decision to disburse funds is contingent upon the government’s ability to implement economic reforms and maintain stability. The protests and political unrest may delay or complicate the negotiations, which are crucial for securing external financial support. A delayed IMF program can lead to increased economic vulnerabilities and further pressure on the PKR. The arrest and subsequent protests can also be viewed through the lens of international perception. Political instability and unrest in Pakistan may impact the country’s image and influence external factors such as foreign investments, trade relations, and the flow of remittances. Changes in these external factors can impact the PKR exchange rate. The currency market is complex and influenced by various interconnected factors. While political developments can have short-term effects on the PKR, long-term stability and strength depend on addressing underlying economic challenges, implementing sound policies, and restoring investor confidence in Pakistan’s economy.
The arrest of former Pakistan Prime Minister Imran Khan and the subsequent protests can have significant implications for the Pakistan rupee (PKR) against the US dollar (USD). The situation may lead to increased volatility and uncertainty in the currency market. The protests and political unrest can create a sense of instability, causing investors to become cautious and potentially withdraw their investments from Pakistan. This can result in a decrease in foreign direct investment (FDI) and portfolio investments, putting downward pressure on the PKR.
Moreover, the arrest of a prominent political figure like Imran Khan raises concerns about the rule of law and governance in Pakistan. Investor confidence can be negatively affected, leading to a reduction in demand for the PKR. As a result, the PKR may depreciate against the USD. Additionally, the political turmoil can disrupt economic activities, impacting business operations and overall economic growth. This can further contribute to a weakened economic outlook, which may lead to a depreciation of the PKR against the USD.
It is crucial for the Pakistani government to address the underlying issues, restore stability, and reassure investors to mitigate the negative impact on the PKR. The resolution of political tensions and the implementation of sound economic policies will be vital in maintaining the stability of the PKR against the USD.
