Pakistan's open market dollar sales have plummeted by 50% this month, raising concerns about the resurgence of grey market activity and pressure on the exchange rate. Money changers in the open market sold approximately $115 million to the banking system this month, a significant drop compared to the same period last year. Money changers estimate that sales for August may not exceed $200 million, compared to an average monthly figure of $350 million in FY25 and $300 million in July FY26.

Concerns are mounting about the resurgence of illegal markets in major cities, where dollar rates fluctuate between PKR 287 and PKR 292 per dollar. These higher rates are attracting individual sellers and buyers seeking dollars for tuition fees or medical costs abroad. The official exchange rate has been falling since the government's crackdown on smugglers and illegal operators. The dollar has dropped by PKR 4 in the open market, sliding from PKR 288.50 on July 22 to the current PKR 283.58. Bankers clarified that the decline in open market dollar sales is not linked to changes in government incentives for banks and money changers.

They emphasized that remittance inflows remain strong but warned that price controls are enabling grey market players to exploit the gap by offering higher rates. Analysts suggest the market could stabilize with stronger foreign exchange reserves, consistent remittances, and improved ties with key partners like the US and China. They also advised the State Bank to avoid large-scale dollar purchases to maintain liquidity and stability.

Market Signals

Currency Pressure: The 50% plunge in open market dollar sales signifies a tightening of dollar liquidity in the unofficial market. This, coupled with the resurgence of the grey market, puts upward pressure on the exchange rate, potentially leading to further depreciation of the Pakistani Rupee (PKR) against the US Dollar (USD).
Sector-Wide Implications: Industries reliant on imports (raw materials, machinery) will face increased costs due to a weaker PKR. This could impact sectors like textiles, manufacturing, and automobiles, potentially leading to higher consumer prices and reduced profit margins.
Competitor Positioning: Businesses that can secure dollar liquidity through formal channels or have strong relationships with suppliers offering favorable terms will be better positioned.

Winners & Losers

Winners: Grey market operators, Pakistani exporters, individuals with dollar savings. Losers: Importers, consumers, businesses requiring formal dollar access, the government. Increased costs for imported goods could lead to higher inflation and reduced consumer purchasing power.

Action Timeline

Immediate: Review dollar exposure, contact banking partners, explore hedging options.
Short-term: Monitor news flow on currency management, adjust pricing strategies.
Long-term: Build stronger relationships with banks, diversify funding sources.