USD/PKR: Here’s why the Pakistani rupee is doomed

The Pakistani rupee is loitering near its all-time low as differences between the government and the International Monetary Fund (IMF) continued. The USD/PKR pair was trading at 287.99, a few points below its all-time high of near 300. Similarly, the pound to rupee exchange rate was trading at 363.55, slightly lower than its record high.

Pakistan and IMF disagreements continued

The Pakistani economy has come under intense pressure in the past few years. For one, the country has suffered numerous natural disasters, including floods and earthquakes. In 2022, most of the country was covered in floods, which cost thousands of lives and economic damage worth billions of dollars.

Pakistan has also been prone to major earthquakes. Just this week, some parts of the country went through a major earthquake near Gandoh Bhalessa. The country’s political environment has also been difficult, as evidenced by last month’s arrest of Imran Khan.

At the same time, the Pakistani economy is collapsing. To prevent more weakness, the government has been negotiating with the IMF, which is holding $7 billion of bailout funds. This week, the government unveiled a $51 billion budget for the financial year that starts in July.

In a statement, the IMF criticised the government for not implementing the necessary reforms. In a statement, IMF’s representative criticised the budget for not expanding the tax base in a progressive way. 

As a result, it is unclear whether the IMF will release the next $1.1 billion tranche of the support package. If the fund fails to do this, the country will be at pains to source more funds. Analysts believe that its allies like Saudi Arabia and China could provide some short-term support.

But the future is gloomy since Pakistan needs over $20 billion to meet its foreign debt obligations. This is a substantial amount of money for a company whose foreign reserves stand at $4 billion enough to cover one month of imports.

USD/PKR technical analysis

USD/PKR chart by TradingView

The USD to PKR exchange rate has been in a strong bullish trend in the past few years. The Pakistan rupee has lost over 150% of its value in the past five years and over 245% in the past decade. On the daily chart, the USD/PKR pair has remained above the 25-day and 50-day moving averages (EMA).

Therefore, I believe that the Pakistani rupee will likely continue crashing as the country’s economic crisis continues. While an IMF deal will provide some relief, the long-term outlook of the currency is still bearish. For one, most people in Pakistan who have seen their worth crash, will find it difficult to invest or save in their local currency.

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