PKR has depreciated by another 15.70 % since September 2018 when it was at Rs 121/- per US Dollar. Now it is at Rs 139-140 per US Dollar in Dec 2018.

PKR REER has now also been corrected by 20% since early 2017, and is approaching its long-term average.

It is expected that PKR will depreciate further following the government decision to approach the IMF for a bailout.

Following the latest round of depreciation, the PKR real effective exchange rate (REER) has corrected from a high of 128.6 in March 2017 to c.104 currently, as per estimates.

Although the government appears to agree with IMF prescriptions for a weaker PKR and tighter monetary and fiscal policy but IMF program negotiations may not be straightforward.

It is expected that the IMF would emphasize for greater FX flexibility and the need to rebuild FX reserves.

As such based on these facts the forecasts are that USD-PKR would vacillate around 140 by end-2018, would reach 144 by in Q1-2019, would reach by 148 by Q2-2019 and would touch 152 by Q3-2019 and 155 by Q4-2019.

In the wake of such difficult time another debate has started that who is responsible for PKR depreciation, SBP or Government and then within government whether PM House or MOF.

As per news the State Bank of Pakistan (SBP) governor had informed the finance minister about rupee devaluation as per practice well before time, contrary to what Prime Minister Imran Khan has claimed on 3rd Dec 2018.

With this, a perception is being on built that either these three or one or more are responsible for the PKR depreciation.

The perception is totally false as none of these three persons set the PKR $ parity rate. In fact it is the market that sets the rate. However SBP intervenes in to the market time to time with a vision for interest rate and exchange rate.

Exchange rate policy by definition and practically is part of monetary policy. It underwent several changes since 1949 in Pakistan in different tenures.

The foreign exchange market in Pakistan gets its inflows through export proceeds, remittances and FDI. The amount received from IMF is for meeting current account deficit and does not add up in to FX market activities. Further SBP intervenes some time to smooth out the market that can come under pressure on account of lumpy payments or can come out of pressure on receipt of some major amount. Under financial sector reforms started in 1991, current account has been made totally convertible in 1993, meaning that any foreign account holder (FE-25) can send its money outward without any restriction. Likewise this account can receive amount in cash or from outside without any restriction. In capital market investments, the amount can be sent in or send out through SCRA, an account maintained with the banks on behalf of investors. Capital account convertibility is not yet allowed in Pakistan.

The PM’s outburst against the central bank came amid rumors that Finance Minister Assad Umar has offered to resign from his post due to differences on policy issues with the party. However, the Finance Ministry has now strongly rejected the reports, terming them ‘fake’.

The premier said he only came to know about the sudden increase in dollar’s value through the television, adding that the SBP took the decision without taking the government into confidence.

“I did not like the SBP decision. It should have delayed the move or staggered the deprecation,” said Imran Khan. He said the currency devaluation diverted the public debate away from his government’s 100 day performance.

 “I have instructed the SBP that in future no decision shall be taken on currency movement without first informing me,” he said.

Such instance of Imran Khan is totally wrong as Government in any case cannot intervene in SBP matters. The PM desire to bring the central bank under his thumb is not only against the PTI manifesto but also in violation of the SBP Act of 1956. The law gives autonomy to the central bank to control the interest rate and exchange rate according to its monetary policy objectives. It intervenes in to the market with its different tools but never set exchange rate at any time.

Incidentally the SBP also increased the interest rates by 1.50% on the same date i.e. 30th Nov ( on completion of 100 days of the government) in a single go to 10%,  that had increased the government’s debt servicing cost besides making loans expensive for the private sector.

Historically the central bank governors in Pakistan have always remained subservient to the finance ministers. During the past almost three years, the SBP injected $7 billion in the currency market to artificially defend the value of the rupees.

The incumbent SBP governor and his predecessor were pumping dollars in the market with the consent of the finance ministers to artificially defend the value of the rupee. However one can say that there was a lack of transparency in the central bank on the issue of currency market interventions.

Finance Minister Assad Umar has further rejected the notion that the country is facing an economic crisis, saying the “financing gap for the current fiscal year has been met. He said “those spreading rumors about the economy are not doing any favor to the country”.

Umar said that “all the fundamental economic indicators are improving as a result of effective policies of the present government”. He also pointed out that exports are increasing while imports and current account deficit are witnessing downward trend. Further Umar has also made it clear that no compromise will be made on the independence of State Bank of Pakistan (SBP).

Later Minister of State for Finance Hammed Azhar has said that the prime minister did not intend to roll back his commitment to an independent central bank, but only meant that he wanted greater “information sharing” between the bank and the government.

Than who is at fault? In fact SBP non transparent interventions some time create hard time for the public and secondly FX market mafias including Banks Treasurers and Exchange Companies are fully responsible for the situation.

As regards Imran Khan Statements on the subject, the basic flaws in his statements are that they are wrong use of words at wrong times. As a serious government one should have avoided those statements and words. But their looks no chance as by nature the current rulers’ are Dharnna sitters and not made to rule any country.

Exchange companies most of the time continues to exploit general public by taking advantage of volatile exchange rates in collaboration with SBP and Banks Treasures.

For instance most of the time currency dealers keep the open market low and SBP keeps the interbank high. So through buying foreign currency at lesser rate they sell it to the banks at higher rates. Secondly these exchange companies are responsible to smuggle FX through Peshawar or other cities and that is in the knowledge of the government.

Moreover proceeds against exports are not timely coming to Pakistan with the alliance of exporters and banks. So Mafias exist everywhere with SBP just to watch. These factors are other than twin deficits that have brought value of PKR down.

Other than above facts, the main issue in depreciation of PKR are our low foreign exchange reserve buffers to guard against the volatility: Pakistan’s forex reserves have averaged a mere 3.48 pc of GDP vs. a group average of 19pc of GDP, and an impressive 37.52 pc or so of GDP for Malaysia, the country our leadership wants us to follow.

For this there is a need for structural reforms. these reforms should focus on permanently and substantially upgrading our foreign exchange reserve buffers to help deal with external shocks boosting Pakistan’s global integration and competitiveness, especially in the services sector  and attracting more foreign capital via direct and portfolio channels to allow reduced reliance on foreign borrowings.

Hence to keep FX market in control a comprehensive action is required against all institutions and mafias responsible for such mess along with bringing reforms to exchange reserve buffers to guard against the PKR volatility.


  1. I am a student of BAK College. The recent paper competition gave me a lot of headaches, and I checked a lot of information. Finally, after reading your article, it suddenly dawned on me that I can still have such an idea. grateful. But I still have some questions, hope you can help me.


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