The State Bank of Pakistan has unexpectedly left its benchmark interest rate unchanged after it moved the rates up 25 basis points in January this year. It was the first increase in more than four years. The national currency has been devaluated twice during the period and the hypothetical approach of the policymakers is drifting the economy toward precipice. It is yet to be seen how often they will ignore the ground realities and bag feathers of failures after failures in their caps. The political chaos, religious intolerance, foreign interference and many other malaises are knocking the door of national security. According to the experts, improvements in exports and expected increase in the flow of remittances into the country would push medium-term economic growth and recent flexible adjustments in exchange rate would not pose any risk to financial stability. Despite the fact most of the regional economies are doing well, the economy of Pakistan suffers current account deficit which has risen by 50 percent in eight months and inflation has been subdued at 3.8 percent since October. But as a result of devaluation, the worth of bank deposits of millions of accountholders has declined and the people, who had invested in the investment schemes, have lost a good chunk of their money in the process. It has made the whole exercise of saving schemes invalid.
Some experts do not see any risk of unbridled inflation, but ground realities speak in the clear terms. The low currency value will automatically push the rates of various commodities up. The hypothesis that the low currency value will increase exports and curtail trade deficit will backfire as it will increase import bill. The government is expected to announce federal budget next month in the last leg of its five-year term and the general elections are expected in August. However, growing burden of debt, shrinking foreign exchange reserves and deteriorating financial situation could push the government to look toward international financial institutions. It is dilemma of this nation that anti-national elements, criminals and wiz-kids go on the rampage during the days of transition of power from one government to another. The national institutions, including the State Bank of Pakistan, should have to be strengthened to foil their attempts. The devaluation of rupee was not a wise decision and sooner the government reverse it the better. Otherwise, the financial situation could go out of control in the near future.
