Imagine waking up one day to find that the Pakistani Rupee (PKR) is stronger than the US Dollar. Sounds like a dream, right? But is it really impossible? Given Pakistan’s current economic challenges, the idea may seem far-fetched, but with the right strategies and data-driven insights, could this dream be turned into reality?

PKR Overtaking the Mighty US Dollar – It’s an interesting topic to think about. In recent years, the value of the Pakistani rupee has been under constant pressure due to factors such as inflation, trade imbalances and foreign debt. But strengthening the PKR is something Pakistan can work towards, even if it is not realistic to overtake the dollar in the near future. So let’s dive into how this could happen and what it would mean for the country.

Not to mention, however, it requires more than just economic policy – ​​it requires political stability and sound governance.

Reality check – where do we stand today

To be blunt, the PKR is far from overtaking the USD anytime soon. Pakistan is currently facing serious economic challenges: inflation is sky high, foreign exchange reserves are running low and the dollar exchange rate is above 280.

As of November 2024, Pakistan’s foreign exchange reserves have reached $11.29 billion, the highest in over two and a half years, thanks to a boost from remittances and an IMF payment.

The Federal Board of Revenue (FBR) set a tough tax collection target of Rs 12.9 trillion for 2024-25, but there has been a shortfall of Rs 190 billion in the first four months of the fiscal year.

The shortfall comes mainly from lower import taxes and slower growth in domestic sales tax, although collections are up 25% compared to last year.

A look at the political crisis

Political instability is one of the biggest obstacles to economic progress in any country, and Pakistan is no exception. Political uncertainty creates a lack of trust, both nationally and internationally. With frequent changes of government, protests and uncertainty surrounding major decisions, the Pakistani rupee has faced significant devaluation over the years.

For Pakistan to be able to strengthen its currency, it needs a stable political environment. Without this, economic policy will remain inconsistent and investor confidence will be hard to win.

What can turn the tables? Possible strategies

So if we were to aim for PKR to compete with USD, what steps can Pakistan take? Let’s look at some expert-backed strategies – which would require a multi-faceted approach including:

Increase exports

Pakistan’s trade deficit is a major problem. The country imports more than it exports, which means there is a constant demand for foreign currency. By focusing on producing more locally and reducing dependence on imports, Pakistan can improve its balance of payments and give PKR a fighting chance.

Countries like China and India have done it, so why can’t we? Investing in sectors like IT, textile and agriculture can generate foreign exchange.

If Pakistan can find ways to make its goods more competitive in the global market, the demand for rupees will increase as foreign buyers purchase Pakistani products. Policies that support the export industry can be the key to increasing exports.

Unfortunately, Pakistan’s current export growth is not sufficient to balance its trade deficit.

Attract foreign investment

To attract more dollars to the country, Pakistan needs to create a business-friendly environment (encouraging both domestic and foreign investment). However, foreign investment has declined due to political instability and security concerns. This means simplifying the rules, protecting investors’ rights and ensuring political stability.

Sectors such as IT, agriculture and renewable energy have the potential to attract billions in foreign investment.

More investment means more capital flows into the country, which strengthens the currency and increases economic growth. So if the government can stabilize the political environment and offer incentives, we may see an increase in foreign investment.

Inflation control

With inflation rising above 30%, the purchasing power of the rupee is eroding rapidly. If Pakistan can keep inflation under control, the value of PKR will remain more stable.

Inflation is one of the main reasons why the PKR has depreciated in the past, so keeping it in check is crucial.

This can be achieved by implementing a sound monetary policy, reducing government spending and controlling the money supply.

Economic growth

One of the key factors in strengthening a currency is having a strong economy. If Pakistan can increase industrial growth, improve agriculture and expand sectors such as technology, the economy will grow, which in turn will strengthen the currency.

Growth leads to higher exports, more jobs and increased income, all of which can help stabilize the rupee.

Debt management

Pakistan has a large amount of external debt, much of it in foreign currency. To reduce the impact of this debt, Pakistan needs to focus on managing its fiscal policy better.

This may include reducing government borrowing and ensuring that loans are used in a way that generates returns for the economy.

The Pros: What if the PKR overtakes the USD?

If, by some miracle, the PKR overtakes the USD, it could have several positive outcomes:

Reduced inflation

A stronger PKR would help reduce the cost of imports, which would ease inflation and make essential goods more affordable. For a population already suffering due to economic hardship, this would be a welcome relief.

Increased purchasing power

A stronger PKR means more value for money. Imagine getting more bang for your buck when shopping or traveling abroad!

Cheaper imports

A stronger rupee would mean cheaper imports, especially essential goods such as oil, machinery and medicines. This means that Pakistani citizens will have more purchasing power.

Lower debt burden

Pakistan’s debt is largely in dollars. With a stronger PKR, the government would need fewer rupees to pay off dollar loans, reducing the financial strain on the country.

Economic stability

A stable currency is a sign of a stable economy. If Pakistan can strengthen the PKR, it would signal to investors that the country’s economy is growing and the currency is reliable.

Improved trade balance

With a stronger currency, imports may become cheaper, and while exports may become more expensive, Pakistan would have more capital to invest in strengthening its export sector.

Attract foreign investment

A stable and strong PKR can also attract more foreign investors. People prefer to invest in stable economies, so if the currency is strong and inflation is under control, Pakistan may see an increase in foreign direct investment (FDI).

The flip side: What can go wrong?

But let’s not get carried away because it’s not all sunshine and rainbows. With political parties in constant conflict, changes in leadership and the ongoing power struggle between the government and the opposition, finding common ground on economic reforms is a challenge.

Political instability creates uncertainty and economic decisions become difficult to implement when the country is divided.

Strengthening PKR would therefore also have some disadvantages:

Risk of capital flight

If PKR becomes too strong, it may encourage wealthy individuals to move their money overseas. This can get risky, especially with all the political uncertainty making people nervous about keeping their investments here.

Short term financial pain

In the short term, a strengthening of the PKR could lead to economic discomfort. Price increases on domestic goods, reduced export earnings and a slowdown in some industries can hurt the economy initially. Careful policy management is required to balance these effects.

Slower growth in the short term

Making the rupee stronger could mean tighter spending rules, which could slow the economy for a while. This can mean higher unemployment prices and slower development key sectors such as infrastructure.

Export competitiveness

A stronger rupee could make Pakistani exports less competitive, as they would become more expensive for international buyers. This could hurt our exporters, especially small businesses.

Overvalued currency risks

If the rupee strengthens without solid economic growth or stability to support it, it is like building on shaky ground. It may look good at first, but it can lead to an economic bubble that bursts later and causes bigger problems. This kind of situation has happened before in some Latin American countries, where artificially strong currencies ended up crashing and hurting their economies.

Impact on exports

A stronger rupee could make Pakistani goods more expensive for foreign buyers. This would hurt exporters, who may see reduced demand for their products. The government would have to find ways to balance this effect.

Inflation risks

A stronger PKR may lower import costs, but it may also push inflation up a bit. Local businesses may raise prices to adjust to the exchange rate, and this may end up affecting consumers.

Negative effects on tourism

A stronger PKR could mean higher costs for foreign tourists visiting Pakistan, which could hit the tourism industry hard – a sector with great growth potential for the country.

Conclusion – is it possible?

In a nutshell, while it is tempting to imagine the PKR outperforming the USD, we need to keep our expectations grounded. For that to even be a possibility, Pakistan would need to implement significant economic reforms, stabilize the political environment and focus on sustainable growth.

Strengthening PKR is not out of reach, but it would require careful planning and a long-term vision. Achieving this would mean controlling inflation, increasing exports and managing debt – all while working to build a more stable economy.

Furthermore, for PKR to see meaningful improvement, political stability is key. With the right policies, stronger governance and concerted efforts by both the government and the private sector, Pakistan can gradually move towards a more stable and resilient economy.

It won’t happen overnight, but with a united effort focused on economic progress, a stronger PKR – and a more prosperous future – is within reach.