Pakistan Faces Dollar Shortage as Floods Disrupt Economy and Rupee Stability
KARACHI: Pakistan’s worst floods in decades have triggered a severe shortage of US dollars in the open market, raising concerns about the rupee’s recent rally and increasing the risk of currency hoarding, according to market dealers.
Large parts of the country’s banking and exchange infrastructure have been impacted by floodwaters, forcing many outlets to suspend operations. “Dollars are scarce across the country,” said Saleem Amjad, CEO of Link International Exchange Co., one of Pakistan’s largest forex firms, while speaking to Bloomberg.
Human and Economic Toll
The natural disaster has claimed the lives of more than 930 people and displaced over four million in just two months. Beyond the humanitarian crisis, the floods have disrupted supply chains — from essential food items to foreign currency inflows — further straining an economy already under pressure.
Rupee Rally at Risk
The Pakistani rupee had recently gained for 25 consecutive sessions, marking its longest winning streak in two years. However, analysts warn that the currency’s upward momentum may not last if dollar shortages continue. The situation could also complicate imports and weaken Islamabad’s position ahead of the upcoming IMF loan review.
“The floods could strain external balances, foreign exchange reserves, and ultimately the rupee,” wrote Ankur Shukla, economist at Bloomberg, noting that reserves currently cover less than three months of imports.
Hoarding Concerns
While the rupee has risen about 1.2% since July’s low, supported by stricter monitoring, an S&P Global Ratings upgrade, and a new trade agreement with the US, dollar scarcity has led to fears of hoarding. “Some individuals are holding on to dollars, betting on a reversal in the rupee’s strength,” Amjad explained.
Outlook
Zafar Paracha, General Secretary of the Exchange Companies Association of Pakistan, reassured that the shortage is temporary and expected to ease within two weeks. Still, a recent Topline Securities survey found that nearly half of respondents believe the rupee may weaken to 285–290 per dollar by the end of the year.
✅ Bottom Line: Pakistan’s dollar crunch, worsened by the devastating floods, is testing the resilience of the rupee. How quickly currency supplies stabilize will be critical for economic confidence in the coming weeks.
