When the world is moving toward the de-dollarization of the economy, Pakistan struggles with the appreciation of the dollar money. The flood catastrophe, political instability, and economic crisis have created a synergistic impact on Pakistan’s economy. As a result, the value of the rupee seems to be in a freefall.
The Dollar Crisis
Pakistan has wrestled with the dollar crisis numerous times in its history. One of the main reasons for the resurging dollar crisis in Pakistan is the balance of payments. The lack of diversification and the globally high oil prices have led the country to a large trade deficit, meaning that the country imports more than it exports. It means that we are spending more dollars than we are earning, thereby creating a deficit already.
This problem has been further exacerbated when oil prices shoot up globally following the Russia-Ukraine War. As a result, Pakistan had to invest its capital in buying lots of fuel, which was still insufficient for fulfilling the industrial needs of the country. In response, Pakistan’s exports of goods have depreciated from $17.742bn in Fiscal Year July-Jan 2022 to $16.429bn in Fiscal Year July-Jan 2023. In January 2023, Pakistan’s trade deficit expanded by 3.1% YoY to PKR 0.62 billion. This is an increase from PKR 0.60 billion in the same month of the previous year. The increased current account deficit and the fall in foreign exchange reverses have led to the pressure of meeting the payment needs of the country.
The Freefall of Rupee
The scarcity of the US dollar in the high-demand phase is leading to the depreciation of the rupee’s value. It triggers an exponential increase in inflation, increasing the cost of living for people. It means that people do not have enough resources to pay the cost of daily living, making it impossible for them to invest their money in building financial assets. This situation has attracted the attention of different businesses, including the real estate industry.
Should Real Estate Industry Worry?
The real estate industry might undeniably face repercussions of the decay of the rupee in Pakistan. The 1 square foot of residential land which was priced at 9,000/-PKR in 2020 costs an average of around 15000/- PKR in 2023. Hence, this is indeed a worrisome time for real estate corporates:
- Due to the unstable market conditions, foreign investors are wary of investing in Pakistan’s real estate.
- The overseas Pakistanis are in a sense of distrust due to the political circus, demotivating them to invest in overseas schemes.
- The higher demand for US dollars and the loss of value for rupees have increased the real estate property prices in the country.
- It has also resulted in the inflation of construction materials leading to an increase in the price of construction.
- In a time when people are struggling to put food on their plates, it is unlikely that the middle class can invest in properties. This lowers the number of potential clients.
The process of Pakistani currency losing its worth has been going on for the last three years; however, this process has considerably sped up in the last year owing to the shooting rise of the dollar due to multiple factors such as political instability and loss of foreign reserves as well as the global issues such as Russia-Ukraine crisis that is effecting everyone worldwide. Consequently, the rupee has lost its worth considerably. This is a worrisome situation for the real estate industry.