The exchange rate is a critical economic variable for Pakistan. A competitive and credible currency regime should form the core of the nation’s economic strategy, particularly given the country’s dependence on foreign exchange for growth. Unfortunately, Pakistan has repeatedly used the exchange rate as a short-term stabilisation tool, often holding it at levels that favour political convenience rather than economic fundamentals. Once reserves are depleted, this approach has led to abrupt and disruptive corrections consistently undermining rather than enhancing export potential. That said, it is incredibly important to have a competitive exchange rate as it improves export margins, encourages investment in tradable goods, and signals the viability of producing for global markets. History shows that prolonged artificial stability acts as a tax on exports and a subsidy to imports However, rate alone is insufficient; credibility is equally essential. Exporters are willing to invest and scale up operations only if they trust that relative prices will remain broadly aligned with fundamentals over time. In Pakistan’s case, this trust has been repeatedly eroded. The Musharraf era During the Musharraf administration, the rupee was kept stable at around Rs60 to the dollar throughout much of the 2000s. While this stability created an illusion of macroeconomic soundness, it concealed growing external imbalances. When the pressures finally surfaced, the adjustment was late and severe: from 2007 to 2009, the rupee dropped from roughly Rs60 to over Rs80 per dollar as reserves collapsed and an International Monetary Fund intervention became necessary. Exporters, who had operated under an overvalued currency, did not suddenly become competitive. Instead, they faced higher input costs, disrupted financing, and weakened financial positions. Stability over fundamentals The above pattern recurred between 2013 and 2017, with the rupee held between Rs100–105 per dollar despite widening current-account deficits and falling reserves. Exporters consistently warned about the currency’s overvaluation, but policy makers focused on maintaining price stability and political optics. When the inevitable adjustment occurred, it was abrupt and disorderly: the rupee’s value dropped sharply in mid-2017, followed by a larger correction after 2018, reaching around Rs160 per dollar by mid-2019. This sudden realignment destabilised firms and inflation expectations instead of supporting a smooth transition. Market distortions and eroding confidence The last three years have proven even more damaging. Administrative controls, delayed adjustments, and the emergence of multiple exchange rates pushed pressure into informal markets. In early 2023, the rupee experienced one of its steepest single-day falls, losing nearly 10 per cent within hours. Over the year, it depreciated by close to 30pc percent, at one point briefly approaching Rs300 per dollar before settling near Rs285 when administrative controls were introduced. These shifts coincided with harsh stabilisation measures such as import compression, punitive interest rates, higher energy prices, and increased taxes. Any potential export gains from depreciation were negated by rising costs and collapsing confidence. Repeatedly underminig exports These episodes highlight a clear lesson: prolonged artificial stability acts as a tax on exports and a subsidy to imports. This encourages consumption and rent-seeking while discouraging investment in tradable sectors. When adjustment is finally forced, it comes as a crisis — too sudden and volatile to generate the intended export response. Exporters cannot recover lost markets overnight, nor can they invest amidst uncertainty and tightening financial conditions. Gradual adjustment and integrated policy Successful export economies do not rely on dramatic devaluations. Instead, they allow gradual, market-aligned adjustments, avoid prolonged misalignments, and resist using the exchange rate as a political tool. Effective currency policy is complemented by competitive energy pricing, predictable taxation, efficient logistics, and skills development, enabling exporters to respond to price signals. For example, Vietnam has pursued gradual adjustments that avoid prolonged overvaluation and limit volatility, giving exporters the confidence to invest and integrate into global value chains. Bangladesh has similarly adopted a steady crawl rather than crisis-driven devaluations, preserving export competitiveness and market share — a model Pakistan has repeatedly failed to emulate. Conclusion: toward a credible exchange rate policy Pakistan’s core issue is not deciding between a ‘strong’ or ‘weak’ rupee. Rather, it is the persistent belief that administrative controls can substitute for competitiveness. Until the exchange-rate policy reflects fundamentals on a sustained basis and is part of a broader, credible export strategy, depreciation will remain disruptive, and exports will continue to be vulnerable to future crises. The writer, a former CEO of Unilever Pakistan and of the Pakistan Business Council, serves on the boards of several public companies. Published in Dawn, The Business and Finance Weekly, January 19th, 2026