The $235 Million Scandal: How Pakistani Banks Exploited the Forex Crisis

Pakistan’s Senate Standing Committee on Economic Affairs has heavily criticized the State Bank of Pakistan (SBP) for lenient penalties imposed on commercial banks accused of manipulating exchange rates during the 2022 foreign exchange crisis. These banks allegedly orchestrated a PKR 6,500 crore ($235 million) “heist” by overcharging for letters of credit (LCs) used for imports.

The Forex Crisis Explained
In 2022, Pakistan faced a severe foreign exchange shortage, with reserves dropping below $8 billion. The economy was hit by high inflation, a depreciating rupee, and mounting financial pressure. Businesses struggled to secure foreign currency for essential imports, while the government relied heavily on international financial support to prevent an economic collapse.

How Banks Allegedly Profited
Amid this crisis, some of Pakistan’s largest commercial banks reportedly took advantage of the situation by inflating LC fees. These fees, which are usually adjusted to reflect currency risk, were allegedly manipulated to overcharge importers who desperately needed US dollars for critical imports like raw materials, food, and fuel. The banks profited from the growing gap between the Pakistani rupee and the US dollar, further burdening businesses and consumers.

Impact on Businesses and Citizens
The inflated fees significantly raised costs for businesses, which in turn increased prices for everyday consumers. This further worsened the economic crisis, driving inflation higher and making essential goods even more unaffordable for ordinary citizens.

SBP Under Fire
The SBP imposed fines of PKR 140 crore on the banks involved, but lawmakers argue this is a mere fraction of the PKR 6,500 crore the banks allegedly pocketed. The committee has called for a more thorough investigation and stronger action to hold these banks accountable for their role in worsening the forex crisis.

This controversy highlights the need for better oversight in Pakistan’s financial system to prevent similar exploitations in the future.