Pakistan is facing a growing shortage of US dollars, a problem intensified by the recent floods that have submerged banks and disrupted the country’s foreign exchange market. This scarcity is raising concerns that the rupee's recent winning streak could be at risk.
According to Saleem Amjad, CEO of Link International Exchange, the floods have knocked out many banks and exchange outlets, making it harder for people to access dollars. This disruption is happening at a crucial time, as importers and investors are competing for limited dollar supplies, which could stall the rupee's two-year-long, 25-session winning streak.
The dollar shortage could complicate the government's efforts to stabilize the economy before an upcoming International Monetary Fund (IMF) loan review. Ankur Shukla, an economist at Bloomberg, warns that the floods could strain Pakistan’s foreign exchange reserves, which are already low, covering less than three months of imports.
Despite these challenges, the rupee has shown some resilience, gaining 1.2% against the dollar since hitting a low in July. This has been supported by new oversight from the army, a credit rating upgrade, and a new trade deal with the United States.
However, the currency's recent strength is also encouraging some people to hold onto their dollars, anticipating a future weakening of the rupee.
Looking Ahead: Short-Term Pain, Long-Term Uncertainty
Analysts believe the current dollar shortage will be temporary. Zafar Paracha, General Secretary of the Exchange Companies Association of Pakistan (ECAP), expects the market to return to normal in about 10 to 15 days. They also predict the rupee will remain stable at around 281 per dollar this month, largely due to strong remittance inflows from overseas Pakistanis. Remittances rose to $6.4 billion in the first two months of the fiscal year, and the central bank's foreign exchange reserves have also seen a modest increase.
However, the long-term outlook remains uncertain. A recent survey by Topline Securities found that nearly half of participants believe the rupee will weaken to 285-290 per dollar by the end of the year. This indicates that while the immediate crisis may pass, underlying economic pressures and the potential for a weakening currency still exist.
