ISLAMABAD: In the early months of FY 2024, Pakistan’s exchange rate regime came under intense pressure amid global financial uncertainty and domestic imbalances. A sharp divergence of over 9 percent between the interbank and open market exchange rates triggered a surge in informal currency trading and caused an estimated US$ 4 billion loss in official remittance inflows. This misalignment eroded market confidence, fueled inflationary pressures, and led to a drawdown in foreign exchange reserves.
In response, the government acted decisively. In September 2023, a nationwide crackdown was launched against illegal currency trading, smuggling, and hoarding. Coordinated enforcement actions resulted in multiple arrests and the seizure of significant illicit funds, curbing the parallel market’s influence. Simultaneously, the State Bank of Pakistan implemented key reforms to improve the functioning of the foreign exchange market. The central bank worked to align the interbank and open market exchange rates within the IMF-prescribed ±1.25 percent band, restoring transparency and credibility.
These combined efforts yielded tangible results. The Pakistani rupee appreciated 3.5 percent against the US dollar, and the premium between official and market rates narrowed significantly. This helped stabilize inflation expectations, reduce speculative pressures, and rechanneled remittances through formal banking network. The SBP maintained a market-based exchange rate policy, avoiding artificial interventions, enhancing operational transparency.
The recent IMF’s disbursement of US$ 1.02 billion reflects a favorable assessment of Pakistan’s economic performance, confirming that macroeconomic stability is evolving on a solid trajectory. As of May 16, 2025, foreign exchange reserves totaled US$ 16.8 billion, comprising US$ 11.6 billion held by the SBP and US$ 5.2 billion by commercial banks which has helped stabilize the exchange rate as well. For July-April FY 2025, Average Exchange Rate remained 1$ = Rs 278.72 which also restored market confidence, and strengthened the country’s external position.
These measures gained importance in the context of a globally volatile financial environment. Persistent trade tensions, uneven global monetary policy adjustments, and a shifting outlook for the US dollar have reduced global risk appetite, resulting in capital flow volatility. Such episodes often trigger large-scale outflows from emerging markets, placing high pressures on their currencies and tightening domestic financial conditions.
Pakistan’s earlier experience in FY 2024 demonstrates the vulnerabilities that such global shocks can expose when policy and regulatory frameworks are misaligned. In response, the government and the SBP have since taken coordinated and targeted steps to reduce associated risks. These include enforcing a unified and transparent exchange rate mechanism, crackdowns on illegal currency trading, enhanced monitoring of foreign exchange operations, and strict regulatory oversight of exchange companies. Additionally, adopting a flexible, market-determined exchange rate, prudent reserve management, and the alignment of fiscal and monetary policies have collectively helped insulate the economy from external volatility. These measures aim not only to mitigate immediate shocks but also to build long-term resilience in Pakistan’s external sector.
