If currency crises were rare catastrophes, one might chalk them up to bad luck. But in Pakistan’s case, they’ve become disturbingly a routine. In a research paper I and Hafsa Hina examined six major currency collapses from 1982 to 2022, to show that the results are damning: each was a predictable outcome of policy failure, macroeconomic mismanagement, and deliberate denial of structural reforms.
The data speaks clearly. In every case, the rupee collapsed, foreign exchange reserves evaporated, and Pakistan was left begging – again — for a bailout.
The Recurring Script of Ruin
From the 1960 devaluation to the post-COVID 2022 collapse, the pattern is repetitive:
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1973: after fixing the rupee artificially to the dollar and introducing a bonus voucher to incentivize exports we had to devalue by over a 100%.
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1982: Managed float ends in devaluation as reserves run low.
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1998: Foreign currency liabilities built up for a decade and central bank was left with huge negative reserves. Nuclear tests burst the bubble.
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2008: Following a decade of fixed exchange rates and low interest rates with the buildup of energy losses and faulty energy subsidies, the bubble burst.
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2018: Ishaq Dar’s insistence on a fixed peg and a financially repressed economy brought to another crisis immediately after a successfully concluded IMF programme.
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2022: Following Covid and a huge monetary impulse and confused exchange rate policy led to another exchange rate crisis.
In each crisis, the exchange rate depreciated massively, and reserves plunged in each of these cases.
Why the crises again and again!
My research shows that:
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Policymakers need to come to terms that exchange rate is beyond their control.
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They also need to understand that a market driven exchange requires an underlying macroeconomic discipline.
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They rely on the exchange rate for short-term stability only to create an expensive crisis in the medium term.
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Most of these crises were created by policy inconsistencies namely high fiscal deficits, excessive credit expansion, and an overvalued exchange rate.
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They must realize that the erosion of investor confidence and speculative attacks are self-created fundamentally because of a lack of understanding of exchange rate policy
Each time, Pakistan held on to artificial exchange rate pegs, borrowed to consume, and refused to fix its broken economic engine.
Foreign exchange reserves were consistently sacrificed at the altar of exchange rate “stability”. But this wasn’t stability—it was a façade. The government burned through reserves defending the rupee when it should have adjusted early. This eroded investor confidence and made inevitable corrections far more painful.
In any case Pakistan has never really developed a credible reserve buffer because of our fixation with a fixed exchange rate to allow macroeconomic indiscipline.
The hidden crisis that is often ignored is the loss of productivity, investment and economic growth. After all, the uncertainty in policy and the loss of confidence of repeated failures hurt planning of enterprise. Eventually, the price is really paid by the more vulnerable sectors as opportunities shrink and the economy slows human capital and all other plans. As always, the poorest paid the highest price for policy incompetence.
Breaking the Vicious Cycle: What Needs to Change
A clear way forward:
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Let the exchange rate reflect market realities. Don’t waste reserves defending artificial rates.
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Fiscal discipline is not optional. Governments must stop borrowing to fund patronage.
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Fiscal discipline does not mean increasing taxes alone; it also means controlling expenditures and spending wisely for productivity and growth
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Independent monetary policy is essential. Stop printing money to cover deficits.
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Ease the regulatory environment to allow businesses to work, grow and develop exports.
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Economic growth and export competitiveness must become a national obsession — not a slogan.
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Productivity at every level must also become a national obsession.
End this cycle of failure.
Pakistan’s currency crises aren’t external attacks. They are self-inflicted wounds. Each crisis is a sequel of the last—with new actors but the same tired plot: deny the problem, delay reforms, defend the rupee, then devalue it in panic. This research is a wake-up call.
The fix isn’t flashy, but it’s firm: prudent macroeconomic management, transparent policymaking, and acceptance that the market—not wishful thinking—determines currency value. Exchange rate is an outcome variable not a policy instrument! Don’t fix the exchange rate to mask your own policy failures to regret it later.
Six crises should be enough to teach us. It’s time we learn the lesson.
Copyright Business Recorder, 2025
