Reason Behind Dollars Rate Increase in Pakistan

The value of a country’s currency plays a crucial role in determining the overall economic health of that country and the Reason Behind Dollars Rate Increase in Pakistan In recent years, the value of the Pakistani Rupee has been decreasing against the US dollar. This has led to an increase in the cost of imported goods and a decrease in the purchasing power of the Pakistani people. In this blog post, we will discuss the reasons behind the increase in the dollar rate in Pakistan.

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Trade Deficit

One of the main reasons for the decrease in the value of the Rupee is Pakistan’s trade deficit. A trade deficit occurs when a country imports more goods than it exports. This leads to a shortage of foreign currency, in this case, dollars, in the country. Pakistan has been experiencing a trade deficit for several years, which has led to a decrease in the value of the Rupee against the dollar and the Reason Behind Dollars Rate Increase in Pakistan

n 2019, Pakistan’s trade deficit was $32.8 billion, which was an increase of 12.3% compared to the previous year. This trade deficit was mainly due to an increase in imports, which were driven by an increase in demand for industrial raw materials, machinery, and consumer goods. On the other hand, exports from Pakistan decreased due to a decrease in demand for Pakistani products in the global market

High Inflation

Another factor that has contributed to the decrease in the value of the Rupee is the country’s high inflation rate. Inflation occurs when the prices of goods and services in a country increase over time. When inflation is high, the value of a country’s currency decreases. Pakistan has been experiencing high inflation for several years, which has led to a decrease in the value of the Rupee against the dollar.

According to data from the Pakistan Bureau of Statistics, the inflation rate in Pakistan was 11.2% in December 2020. This high inflation rate is mainly due to an increase in food prices, especially those of essential items such as wheat, sugar, and cooking oil. Additionally, the devaluation of the Rupee has led to an increase in the cost of imported goods, which has further contributed to the high inflation rate.

Balance of Payment Crisis

Another reason behind the decrease in the value of the Rupee is the country’s balance of payment crisis. A balance of payment crisis occurs when a country has more foreign currency going out of the country than coming in. This can lead to a shortage of foreign currency in the country and a decrease in the value of the domestic currency.

Pakistan has been facing a balance of payment crisis for several years due to a combination of factors such as increasing imports, decreasing exports, and a widening current account deficit. The country has been relying heavily on borrowing from international financial institutions and foreign countries to finance its balance of payments deficit. This has led to a depletion of foreign currency reserves and a decrease in the value of the Rupee.

Impact of COVID-19 Pandemic

The COVID-19 pandemic has had a significant impact on the global economy, and Pakistan has been no exception. The pandemic has led to a decrease in demand for goods and services, which has led to a decrease in exports and an increase in imports. This has led to an even greater trade deficit and a decrease in the value of the Rupee against the dollar.

Additionally, the pandemic has led to a decrease in tourism and foreign investment, which are important sources of foreign currency for Pakistan. The decrease in these sources of foreign currency has further contributed to the decrease in the value of the Rupee.

There are several steps that can be taken to improve the economy of Pakistan:

1. Increase Exports: Pakistan can increase its exports by focusing on niche products and services that are in high demand in the global market. Additionally, the government can provide incentives and subsidies to exporters to help increase their competitiveness in the global market.
2. Reduce Imports: Pakistan can reduce its imports by focusing on increasing domestic production of goods and services. Additionally, the government can impose tariffs and duties on imported goods to make them less attractive to domestic consumers.

Conclusion

In conclusion, the increasing rate of the dollar in Pakistan is due to a combination of different factors such as trade deficit, high inflation, balance of payment crisis and the impact of this situation down day by day and dollars price increase speedily