Pakistani rupee faces pressure amid dollar shortage

Dubai: The Pakistani rupee is coming under renewed pressure as a severe shortage of US dollars grips the market, with exchange companies struggling to meet rising demand.

The scarcity is intensifying concerns over hoarding, smuggling, and potential market distortions.

Currency experts warn that while administrative measures have temporarily supported the rupee, these interventions may falter in the face of rising demand and unexpected crises, such as the recent devastating floods across the country.

Since the government’s crackdown on dollar smuggling in July this year, the rupee has managed a modest appreciation. However, analysts caution that this trend is largely artificial. “No force can outmuscle the market when fundamentals are stacked against it. Exchange companies are rarely holding forex cash, and the rupee’s apparent strength masks a drying up of supply,” said Faisal Mamsa, CEO of Tresmark.

The shortage of dollars is further aggravated by exporters holding back their proceeds, creating an uneasy calm in the market. Currency dealers report that despite minor depreciation in the dollar following enforcement measures, the US currency continues to trade above Rs280, well above the government’s Rs250 target, Dawn news reported.

Former Finance Minister Mufta Ismail also expressed concern on his X account. Highlighting the limits of administrative controls, he said: “Right now the SBP is forcing commercial banks to sell dollars at Rs282/283 and incur a loss of Rs7 or so for each dollar. But this scheme too will fail, and the rupee will devalue again,” he said. He added that historically, Pakistan’s rupee has devalued about 7—8% annually over the past 40 years, with policymakers repeatedly trying to hold the rate artificially before sudden large corrections. “It is better to let the market drive the rate and create conditions that maintain the rupee’s strength,” Ismail said, citing inflation control, higher productivity, increased exports, fiscal discipline, and restrained money printing as key factors.

The scarcity has sparked fears that alternative channels, such as hawala transactions and cryptocurrency exchanges, could see renewed activity, undermining formal forex channels.

Market insiders also point to a potential silver lining: a 50% US tariff on Indian textile exports, combined with Pakistan’s relatively favourable 19% export tariff to the US, may help increase inflows and ease pressure on reserves over time.

Despite these measures, the imbalance between demand and supply persists. Currency dealers report shortages of major foreign currencies, including the US dollar, British pound, and euro, raising concerns that a parallel or illegal market may be driving rates higher.

As the government grapples with unrealistic targets and a persistent dollar deficit, analysts warn that the rupee could face a sharp correction if inflows fail to recover and market fundamentals continue to diverge from administrative expectations.