While demonstrating resilience in 2024, with reduced volatility and narrowing gaps between inter-bank and open market rates, the Pakistani rupee (PKR) is poised for its first annual gain against the US dollar in nearly a decade, driven by a stable external account, higher remittances and rising exports under tight fiscal and monetary policies.
According to the annual exchange rate data, the stability in the currency has also contributed to single-digit inflation, improved foreign reserves and a calm foreign exchange market since mid-2023, setting the stage for sustained economic growth. Pakistani rupee appreciated by 1% against the US dollar in the outgoing calendar year 2024 after witnessing depreciation in nine consecutive years with an average annual decline of 10%, according to Topline Securities.
"The currency appreciated due to strong macroeconomic credentials from a robust remittance trend, following a narrowing difference between formal and informal exchange rates, and a current account surplus in 2024," said Pakistan Forex Association President Malik Bostan.
The exchange rate started at approximately Rs280 in early January 2024, showing a slight weakening trend. By mid-year, the rate fluctuated between Rs277 and Rs279, reflecting a stabilising trend. A sharp dip in March occurred, followed by a gradual recovery through April and May. By December, the inter-bank rate closed at Rs278.30/$, demonstrating minimal variation over the year.
PKR vs other currencies
The PKR's performance against the euro, UK pound, Saudi riyal and UAE dirham followed a similar stable trajectory, with minor fluctuations. Against the euro, the PKR showed gradual improvement, narrowing the difference between inter-bank and open market rates.
Meanwhile, the PKR's exchange rate against the UK pound demonstrated only marginal declines towards the year-end.
For regional currencies like the Saudi riyal and UAE dirham, the PKR maintained remarkable steadiness, reflecting minimal volatility due to strong remittance inflows and limited external shocks.
The rupee maintained a range-bound movement against the US dollar for most of the year. Sana Tawfiq, Head of Research at AHL, attributed the Pakistani rupee's improved performance in 2024 to several factors, including the IMF programme, healthier foreign exchange reserves and robust remittance inflows. "The most important factor was Pakistan's foreign exchange reserves. Last year, with only $4 billion in reserves, the country was teetering on the brink of default," Tawfiq said. The approval of the IMF's Extended Fund Facility (EFF), coupled with financial support from friendly countries, significantly eased pressure on the rupee.
Among the key contributions, the Saudi Fund for Development (SFD) rolled over $3 billion in investments and Pakistan received a total of $14 billion in rollovers from friendly nations. As a result, the net repayable debt reduced to $5 billion, which alleviated concerns about immediate repayment obligations and maintained rupee stability.
In addition to rollovers, the State Bank of Pakistan (SBP) actively intervened in the market to bolster its reserves. The central bank's reserves have climbed to over $12 billion, while total reserves, including private sector holdings, now stand at $16.3 billion.
Remittances, current account
So far in FY2025, Pakistan's remittances have reached $14.8 billion, a 34% year-on-year increase, which has played a crucial role in achieving a current account surplus and further supporting the rupee. Additionally, Pakistan recorded a trade surplus of $944 million in the first five months of FY2025 – the first such surplus in over a decade.
The narrowing gap between inter-bank and open market exchange rates has also benefitted the rupee. Last year, this gap ranged between Rs20 and Rs30, but it has now almost disappeared. This has encouraged overseas Pakistanis to use formal banking channels for remittances, strengthening the documented economy while discouraging informal systems like Hawala and Hundi, said Tawfiq.
Overall, a combination of improved reserves, financial support, increased remittances, and trade surpluses has significantly supported the rupee, ensuring greater economic stability and fostering confidence in the financial system.
While demonstrating resilience in 2024, with reduced volatility and narrowing gaps between interbank and open market rates, the Pakistani rupee is poised for its first annual gain against the US dollar in nearly a decade, driven by a stable external account, higher remittances, and rising exports under tight fiscal and monetary policies, said AKD Securities Limited Strategy Report 2025.
"The rupee is expected to strengthen in 2024 against the US dollar for the first time in nine years," read the report.
The IMF programme, along with reforms and prudent fiscal management, has enhanced exchange rate flexibility and market functionality. The narrowing gap between inter-bank and parallel market rates has kept the rupee stable around 277/$ since May 2023, it said. The SBP increased reserves through $1.9 billion in forex market purchases from June to August 2024. Additionally, the Real Effective Exchange Rate (REER) index remained stable, reflecting declining inflation differentials and rupee gains of 3.4% since October 2023.
Due to the strong rupee, Pakistan equities outperformed major asset classes in 2024, with the KSE-100 index rising 75% (Jan 1 to Dec 20, 2024), including dividends.
Gold gained 24%, reaching Rs234,311 per 10 grams, while its international price increased from $2,092 to US$2,617 per ounce, according to Topline Securities.
Fixed income investments performed well, with average bank savings offering 18%, and National Savings three-year Special Saving Certificates providing 17%. AMCs' money market funds earned 19%, and the Naya Pakistan PKR Certificate under the Roshan Digital Account returned 22%.
Government PIBs and T-Bills offered strong returns, with PIBs up 27% and T-Bills returning 21%. In real estate, prices of commercial plots in Lahore and Karachi fell by 10-11%, while residential plot and house prices rose by 5-14%. Many investors shifted to fixed-income and low-risk avenues due to high interest rates.
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