Why Dollar price increase in pakistan ?
The Pakistani rupee has experienced significant fluctuations against the US dollar over the years, with its value fluctuating between periods of appreciation and depreciation. In recent times, the value of the Pakistani rupee has declined against the US dollar, leading to an increase in the dollar price in Pakistan. There are several factors that can explain why the dollar price has increased in Pakistan, including macroeconomic factors and political instability.
Dollar rate in 2021
One of the primary reasons for the increase in the dollar price in Pakistan is the country’s persistent current account deficit. A current account deficit occurs when a country imports more goods and services than it exports. Pakistan has been running a current account deficit for several years, and the deficit has continued to widen, reaching $2.97 billion in December 2021. This persistent deficit has led to a reduction in foreign currency reserves, making it challenging for the State Bank of Pakistan (SBP) to stabilize the value of the Pakistani rupee.
Another significant factor that has contributed
to the increase in the dollar price in Pakistan is the country’s high inflation rate. Inflation occurs when the prices of goods and services increase over time, leading to a decrease in the purchasing power of a currency. Pakistan has experienced high inflation rates in recent years, with the rate reaching 11.1% in December 2021. The high inflation rate has led to a decrease in the value of the Pakistani rupee, making it more expensive for people to buy dollars.
The political instability in
Pakistan is another factor that has contributed to the increase in the dollar price. Political instability can cause a decline in investor confidence, leading to a decrease in foreign investment in the country. This lack of foreign investment can put pressure on the value of the Pakistani rupee, causing it to depreciate. Furthermore, political instability can lead to a decrease in economic activity, making it challenging for the country to generate enough foreign exchange to stabilize the value of its currency.
The COVID-19 pandemic
has also had a significant impact on the Pakistani economy, contributing to the increase in the dollar price. The pandemic has caused a decrease in economic activity, leading to a decline in exports, remittances, and foreign investment. This has put pressure on the value of the Pakistani rupee, causing it to depreciate. The pandemic has also led to an increase in government borrowing to finance its response to the crisis, putting further pressure on the value of the Pakistani rupee.
The US Federal Reserve’s monetary policy is another factor that can explain why the dollar price has increased in Pakistan. The Federal Reserve’s monetary policy can impact the value of the US dollar, which, in turn, can impact the value of other currencies, including the Pakistani rupee. The Federal Reserve’s decision to reduce interest rates to combat the economic effects of the pandemic has led to an increase in the value of the US dollar, making it more expensive for people in Pakistan to buy dollars.
In conclusion,
several factors can explain why the dollar price has increased in Pakistan. These factors include the persistent current account deficit, high inflation rates, political instability, the COVID-19 pandemic, and the US Federal Reserve’s monetary policy. These factors have contributed to a decline in the value of the Pakistani rupee, making it more expensive for people in Pakistan to buy dollars. Addressing these issues will be critical for stabilizing the value of the Pakistani rupee and reducing the dollar price in Pakistan.
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