The Pakistani rupee has plunged after soaring as the world's top performing currency. What happened?

• The Pakistani rupee has fallen 20% against the dollar this year, Bloomberg reported.
• That's after spiking in October, as demand for the rupee surged on a clampdown on illicit dollar transactions.

The Pakistani rupee has plunged about 20% against the dollar this year, putting it on track to end 2023 as Asia's worst-performing currency, Bloomberg reported on Monday.

But if you rewind just a month, the currency was briefly the top performer in global markets. What happened?

The rupee soared 8% in October to 275 per dollar after hitting a record low in September because of the Pakistani government's response to illicit dollar transactions, according to the Indian lender HDFC Securities. Following a raid conducted by Pakistan's Federal Investigation Agency, demand for the rupee surged.

But October's jump was fleeting as Pakistan's plagued economy couldn't keep up the optimistic rebound in the rupee. Right now, the rupee sits at 285 per dollar, and some analysts see it sliding to 324-350.

That's because financial mismanagement and political chaos have pushed Pakistan toward the brink of a default. Earlier this month, International Monetary Fund agreed to release $700 million from a $3 billion bailout deal reached in July.

The country is still gripped with sizeable debt loads, a contracting economy, and depleted foreign reserves. Pakistan has also been facing a cash shortage for over a year after delayed IMF payments increased the risk of an actual default and paralyzed usual financing lines.

To top that off, inflation has hit an annual rate of 29.2%, the World Bank reported. And analysts expect Pakistan's economic to continue well into 2024, providing little hope for the rupee.