Pakistani Rupee hits 255 against 1 USD, record low for the country fighting an economic crisis

The economic crisis in Pakistan is getting worse by the day. The cash-strapped country's currency plummeted to a record low of Rs 255.43 against the dollar on Thursday (January 26) against Rs 230.9 on Wednesday.

This comes after the foreign exchange companies removed a cap on currency, saying that it caused 'artificial distortions' for the the Pakistan economy, which was in a desperate need of International Monetary Fund's (IMF) help.

Why the cap was removed? Removing the cap on the Pakistani rupee-dollar exchange rate was a demand of the IMF as part of a programme of economic reforms it has agreed on with the debt-laden South Asian nation.

How the removal of cap by foreign companies affected the Pakistani rupee? The move by the foreign currency dealers on Wednesday, whose open market rates were different from the rates notified by the Central Bank, had a cascading effect on the official exchange rates.

• In the open-market, the Pakistani rupee weakened from Rs 243 to Rs 262 against the US dollar, which registered a slump of nearly 7%, as per the Exchange Companies Association of Pakistan (ECAP) data.
• "We requested the central bank to increase the interbank (rate) to help combat the black market,"ECAP President Malik Bostan said to Reuters.
• The Federal Board of revenue Chairman Asim Ahmed termed the current financial situation in the country as "critical", the Dawn reported. "Economic situation in the country is critical and there is a shortfall in the revenue. We well soon overcome the tax gap," Ahmad said. He also added that the Rs 7.47 trillion (Pakistani rupee) revenue target would be achieved by bringing those people under the tax net who have not been paying tax.

High inflation in the country: Pakistan is suffering from a severe economic slump, where its foreign exchange reserves have collapsed from $8 billion USD to $4.6 USD, as on January 13.

• The country is reeling from a decades-high inflation, which the economists fear is expected to worsen in the future. Most of the Pakistan's critical imports, including fuel, are paid in dollars.
• "It will also give a significant impetus to the already elevated price pressures in the economy," Sakib Sherani, a Pakistani macroeconomist said.
• In the first half of the current financial year, which ends in June, average inflation has been 25%.

How bad is the situation? The extent of how bad the Pakistani economy is at the moment can be known from the fact that thousands of shipping containers packed with raw materials for the industry, foodstuffs and medical equipment are being held up at the Karachi port because the banks have refused to guarantee importers dollars transactions.

• The country also suffered catastrophic floods in June 2022, which dented its economy to a large extent. Actually, the economic devastation of Pakistan began after the floods only.
• While Prime Minister Shehbaz Sherif is absolutely clueless on how to tackle the situation, former Prime Minister Imran Khan calls it a failure of the government and has called of fresh elections.

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