Terror Proxy Pakistan carried out “Dirty Work” ( read : execute terrorist attacks in Afghanistan, India , Iran and Russia on behalf of West ) as confirmed by Pakistani Defence Minister on Sky News. Pakistan was put on the “grey list” of the Financial Action Task Force (FATF) since 2018 because of “strategic counter-terrorist financing-related deficiencies”. Pakistan’s economy and currency was in shambles as FATF put restrictions on Pakistan. In 2022, Biden Administration removed Grey Listing of Pakistan.
The USD PKR Chart shows a the exchange rate between the US Dollar (USD) and the Pakistani Rupee (PKR) over a 5-year period, ending on May 6, 2025. The exchange rate on May 6, 2025, is 281.25 PKR per USD. The graph indicates a sharp depreciation of the PKR against the USD from around mid-2022 to early 2023, peaking near 300 PKR per USD, followed by stabilization around 280 PKR from March 2023 onward.
1. Exchange Rate Trend Overview
- Pre-March 2023: The PKR experienced significant depreciation, especially from mid-2022 to early 2023. This was likely due to a combination of political instability, dwindling foreign exchange reserves, high inflation, and a balance of payments crisis in Pakistan.
- Post-March 2023: The PKR stabilized around 280-290 against the USD, indicating that certain measures or inflows helped arrest the free fall.
2. Key Factors Analyzed
Net Exports
- Before March 2023: Pakistan’s trade deficit was a major pressure point. The country has historically imported more than it exports, with imports of energy (oil, gas) and machinery being significant. In 2022, global energy prices surged due to the Russia-Ukraine conflict, increasing Pakistan’s import bill. Exports, primarily textiles, grew but not enough to offset the deficit. The trade deficit in FY 2022 was around $48.66 billion (July 2021–June 2022), exacerbating pressure on the PKR.
- After March 2023: Pakistan likely implemented import restrictions to curb the trade deficit. In late 2022 and early 2023, the government imposed measures like limiting luxury imports and slowing down Letters of Credit (LCs) for non-essential goods. This reduced the demand for USD, helping stabilize the PKR. Additionally, global oil prices moderated slightly in 2023, easing the import burden. Exports might have also seen a slight uptick due to competitive pricing from a weaker PKR.
Foreign Remittances
- Before March 2023: Remittances are a lifeline for Pakistan, contributing significantly to foreign exchange reserves. In FY 2022, remittances reached a record $31.2 billion, driven by overseas Pakistanis, particularly in the Gulf, USA, and UK. However, in late 2022 and early 2023, remittance inflows slowed due to global economic slowdowns and a growing gap between the official and black-market exchange rates, encouraging informal channels (hawala) for sending money.
- After March 2023: The stabilization of the PKR likely encouraged remittances through official channels again. The government and State Bank of Pakistan (SBP) might have cracked down on illegal forex markets, reducing the exchange rate differential. Remittance inflows likely recovered, with FY 2023 possibly seeing levels closer to $29-30 billion. This steady inflow of USD supported the PKR.
Specific Funds from China, Turkey, Saudi Arabia, and the USA
- Before March 2023: Pakistan faced a severe balance of payments crisis in 2022, with foreign exchange reserves dropping to critically low levels (covering less than a month of imports). To avert default, Pakistan received support from allies:
- China: Rolled over $2 billion in loans in early 2023 and provided additional financing through the China-Pakistan Economic Corridor (CPEC) framework.
- Saudi Arabia: Deposited $3 billion in the SBP in late 2021, with a promise to extend support. In early 2023, Saudi Arabia likely extended or rolled over this deposit.
- USA/IMF: The IMF program (Extended Fund Facility) was stalled in 2022 due to Pakistan’s failure to meet fiscal targets. This delay worsened the PKR’s fall.
- Turkey: Turkey’s support was minimal, mostly symbolic, with no major financial inflows recorded.
- After March 2023: The turning point for PKR stabilization came with renewed international support:
- IMF Deal: In April 2023, Pakistan secured a $3 billion IMF bailout (a continuation of the stalled program). This unlocked additional funding from other multilateral lenders like the World Bank and Asian Development Bank, boosting reserves.
- Saudi Arabia and China: Saudi Arabia pledged an additional $2 billion in deposits in mid-2023, while China rolled over another $2 billion in loans. These inflows directly increased Pakistan’s foreign exchange reserves, reducing pressure on the PKR.
- USA: The Biden Administration indirectly supported Pakistan through the IMF program but did not provide direct bilateral aid.
- Turkey: No significant financial aid was recorded from Turkey during this period.
Foreign Exchange Reserves
- Before March 2023: Reserves hit a low of around $3 billion in February 2023, barely enough for a few weeks of imports.
- After March 2023: With the IMF deal and bilateral support, reserves likely climbed to $8-10 billion by mid-2023, providing a cushion to defend the PKR.
3. Core Reason for PKR Stabilization After March 2023
The primary driver of PKR stabilization was the IMF bailout in April 2023, which restored confidence in Pakistan’s economy and unlocked additional funding from allies like Saudi Arabia and China. This increased foreign exchange reserves, reduced speculative attacks on the PKR, and allowed the SBP to intervene in the forex market to stabilize the currency. Additionally:
- Reduced Trade Deficit: Import restrictions and lower global oil prices helped narrow the trade deficit, reducing USD demand.
- Remittance Recovery: Efforts to curb black-market forex trading encouraged remittances through official channels, boosting USD inflows.
- Political Stability: The political turmoil of 2022 (e.g., the ousting of Imran Khan) subsided somewhat in 2023, improving investor confidence.
4. Comparison Summary
| Factor | Before March 2023 | After March 2023 |
|---|---|---|
| Net Exports | High trade deficit (~$48B in FY 2022) | Deficit narrowed via import curbs |
| Remittances | Slowed due to black-market rates | Recovered to ~$29-30B in FY 2023 |
| Funds (China) | $2B loan rollover | Additional $2B rollover |
| Funds (Saudi) | $3B deposit (late 2021) | Additional $2B deposit (mid-2023) |
| Funds (USA/IMF) | IMF program stalled | $3B IMF bailout (April 2023) |
| Funds (Turkey) | Minimal support | No significant change |
To Sum up
Biden Administration supported Pakistan in stabilizing the PKR and its economy primarily through facilitating IMF bailouts, such as the $3 billion deal in April 2023 and the $7 billion loan in 2024, which bolstered foreign reserves and eased currency depreciation pressures. This assistance, often tied to stringent fiscal reforms, aims to prevent Pakistan’s economic collapse, ensuring it remains a strategic ally. Geopolitically, the USA leverages Pakistan as a counterbalance against the BRICS bloc, particularly to limit China’s influence via the China-Pakistan Economic Corridor. By maintaining Pakistan’s economic stability, the USA ensures its readiness as a proxy in the evolving great power competition.