The corporate and export sectors of the country as well as international financial institutions have been pressuring the government for the last couple of years to curtail rupee value. However, Finance Minister Ishaq Dar has brushed aside any chances of devaluation and successfully maintained the value at certain level. The foreign exchange reserves held by the State Bank of Pakistan were nearly $20.2 billion at the start of the current financial year which it maintained during the first quarter. Rejecting panic calls from various sides, the finance minister believes devaluation will further aggravate the situation as it happened in the past on various occasions. The economic history shows devaluation brought windfall for a section of the business community, but slowed down overall economic activities across the country.The foreign exchange reserves plunged to $3.4 billion during 2007-08 and the government devalued the currency by 28 percent and raised import tariff up to 50 percent on a host of products in panic. However, the move stressed the economy further and effects had been lasted for several years. The economic situation is nearly the same as was a decade ago and the similar kind of remedy will only aggravate the malaise.
The exports of the country are dwindling but devaluation of the rupee should not be the only option before the government to increase exports or resolve the balance of payment problem. The method failed 10 years ago cannot guarantee success this time as the government had to get $7.6billion loan from the International Monetary Fund to resolve the balance of payment problem.It is easy to get loan, but difficult to pay it back. According to economists, various strings are always attached with foreign loans which slow down the growth rate for several years.
The experts who had advised the government in 2008 and 2011 for devaluation and higher import duties are again recommending the same method and it will simply not work. What the government has to do is to stimulate industrial sector and facilitate the business community to enhance exports. Devaluation of rupee will not only increase debt servicing but also cost of production and the Pakistani products will not be able to compete in the international markets. The prices of imported goods will also increase and will open the floodgates of corruption and smuggling. There, the government will have to take proactive approach to deal with the problem. The official machinery also needs capacity building programmes to break its monotony and actively take part in the development of economic policies.
