According to the media reports, the State Bank of Pakistan is weighing options to ‘adjust’ the currency exchange rate with current market conditions. The government financial managers, including Finance Minister Ishaq Dar, had been resisting the devaluation of the Pakistani rupees for the last four years on the ground that it would pressure the already subdued economy and would open the floodgates of inflation in the country. However, apparently the officials are now obliged to move on this direction to materialize $2.5 billion worth of receipts from the two international bonds which the government launched in November this year. It is expected that the depreciation will put one US dollar against 110 Pakistani rupees in the latest equation. The rupee is already hovering around Rs 107 to a dollar and financial experts believe the two weekend holidays will give a breathing space to the rupee instead of over-steaming the exchange rate. The move to depreciate the rupee was already expected as the government was negotiating with the International Monetary Fund on post-loan conditionalities. With depreciation of the rupee, the economic bubble created by Mr Dar has been pinpricked. The much publicized macroeconomic stability is also facing serious challenges as the economy is apparently suffering from the same syndrome as Mr Dar himself in London.
However, credit goes to Mr Dar who braved all the attempts from all sides to devalue the local currency during his active presence in the Finance Ministry. The exporters were already pressing the government to opt for depreciation as the move would multiply their income without losing anything on their part. The ailing Mr Dar has now left the economy in lurch. The policymakers who are happy over the expected move should understand its fallout in the coming months. The bubble of the so-called structural reforms to overhaul the economy has also burst. The economy needs to remove its structural weaknesses in the first place to move forward to the transformational phase.
The revise rates of rupees will definitely build up confidence in exporters, but this would not guarantee increase in exports. The issue of falling exports can only be resolved by increasing industrial production and not by curbing imports or depreciating the local currency. The best way was to encourage exports without compromising on the rate of rupee. A strong currency is the manifestation of strong economy, but unstable exchange rates would further dip the economy. Mr Dar is taking rest in London and Prime Minister Shahid Khaqan Abbasi, who is holding the portfolio in Dar’s absence, has lot of other pressures to deal with. What is going to happen to the economy is written on the wall.
