#Pakistan PKR #rupee

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Islamabad, June 20, 2018
COMMENT
The continuing fall of rupee
By Dr. Vaqar Ahmed
This month witnessed sharp volatility in the
value of Pakistani currency which weakened by
almost 5 percent and traded at PKR 121 to a US
dollar. This happened at a time when just days
before the outgoing Finance Minister had
claimed that there is no need for any further
devaluation. Even the Governor Central Bank is
on record to have said that the currency was
trading near its true
equilibrium value
and will not see any
wide changes.
This clearly
demonstrates that
the public at large
was misled
regarding the true
picture of the
economy. The
widening trade and
fiscal deficit has increased the borrowing
appetite of the government not only to support
the balance of payments but also to fund its own
growing administrative losses. In the case of
trade balance, the previous two rounds of
devaluation, regulatory duties and cash margin
requirements proved inadequate to significantly
curtail the growth of imports. The high-end
retail shelves are filled with all types of
imported exotic foods, cosmetics, smartphones
and accessories. The automobile showrooms
have blossomed on the back of elite’s demand
for imported German and Japanese cars. Little
did we know that liberalizing private
consumption of our elites will end up reducing
purchasing power of the poorest of the poor who
are now set to see higher levels of inflation.
Artificially holding the rupee at a certain
unrealistic exchange rate was never a good idea.
The outgoing government should have let the
currency find its true value much earlier;
allowing an easier adjustment for the people of
Pakistan. What happens now is that exports may
see a short term increase if only Pakistan is able
to provide economical and timely energy
supplies to
industry.
Remittances
through formal
channels may
also increase to
some extent.
On the
negative side,
the increasing
crude oil prices
in the
international
market coupled with rupee’s devaluation could
increase the energy import bill in value terms in
turn testing the country’s capacity to fund
increased energy demand. The devaluation will
also promote long term inflation due to higher
burden of already procured debt and its
repayments.
Final point here is that the interim government
should remain transparent in the ongoing
negotiations for short term debt which is bring
procured from China to help stabilize the
currency. The terms should be known to the
public at large which ultimately has to repay this
loan.
Dr. Vaqar Ahmed is joint executive director of the
Sustainable Development Policy Institute, Pakistan.
Twitter: @vaqarahmed
https://dailytimes.com.pk/255198/the-continuing-fall-of-rupee/