The Pakistani rupee has recently fallen over 4% to set a new record low. This drop in the value of the currency has been attributed to a number of factors, including rising inflation, a widening trade deficit, and a decrease in foreign investment.
The Pakistani Rupee Dribbled
Inflation in Pakistan has been on the rise for several months, with the country’s Consumer Price Index (CPI) increasing by 7.59% in December 2020 compared to the same month the previous year. This rise in prices has been driven by a number of factors, including higher food and fuel costs, as well as a devaluation of the Pakistani rupee.
The main cause is a trade deficit
The trade deficit in the Pakistani rupee has also been a major contributor to the rupee’s decline. The country’s imports have been steadily increasing, while its exports have remained relatively stagnant. This has led to a widening trade deficit, which has put pressure on the rupee.
In addition, foreign investment in the Pakistani rupee has been on the decline. This is due in part to the ongoing economic uncertainty caused by the COVID-19 pandemic, as well as concerns about the country’s political stability and security. Without the influx of foreign investment, the Pakistani rupee has been left vulnerable to fluctuations in the global markets.
Low levels of FDI in Pakistan
The government has been taking steps to try and stabilize the Pakistani rupee currency, including seeking financial assistance from international organizations such as the International Monetary Fund (IMF) and the World Bank. It has also been implementing measures to reduce the trade deficit and attract foreign investment.
The slump in the value of the Pakistani rupee is a cause for concern for the country’s economy and its citizens. It will make imports more expensive, leading to higher prices for consumer goods and services. It will also make it more difficult for Pakistan to attract foreign investment and boost economic growth. The government and central bank will need to continue to take steps to stabilize the Pakistani rupee currency and address the underlying economic issues.
Pakistan Stock Exchange
The recent slump in the value of the Pakistan rupee has also had a significant impact on the country’s currency market. The Pakistan Stock Exchange (PSX) saw a decline in its benchmark KSE-100 index, as investors became increasingly uncertain about the future of the currency. The decline in the value of the rupee has also led to a decrease in the value of the PSX, which could have a negative impact on the overall economy.
The devaluation of the rupee has also led to an increase in the cost of borrowing for both individuals and businesses. This is due to the fact that many loans in Pakistan are denominated in foreign currencies, and as the rupee has declined in value, the cost of repaying these loans has increased. This will have a negative impact on economic growth, as businesses and individuals will have less disposable income to spend.
Read: Combating Inflation in Pakistan
Impact on the Export Industry
The decline in the value of the rupee has also had a significant impact on the country’s export industry. As the rupee has become weaker, the cost of Pakistani exports has become more expensive for buyers in foreign countries. This could lead to a decrease in demand for Pakistani products and services, which would have a negative impact on the country’s economy.
Government and State Bank of Pakistan
The government and the central bank of Pakistan have announced a number of measures to stabilize the rupee and address the underlying economic issues. The State Bank of Pakistan (SBP) has raised interest rates to help curb inflation and stabilize the currency. The government has also been taking steps to improve the balance of trade, such as increasing tariffs on imported goods and reducing subsidies on exports. Additionally, it has been working to attract more foreign investment by offering tax incentives and other benefits to foreign investors.
Read also: SBP intervention limits rupee’s fall after cap lifted
In conclusion, the recent slump in the value of the Pakistan rupee is a cause for concern for the country’s economy and its citizens. It has led to higher prices, a decrease in foreign investment, and a decline in the value of the PSX. The government and central bank will need to continue to take steps to stabilize the currency and address the underlying economic issues in order to boost economic growth and increase the quality of life for Pakistani citizens