Unrealistic rupee value hinders investment

LAHORE: Unrealistic rupee value is one of the factors hindering investment, as the rupee has gained tremendous strength against euro while remaining stable against the US dollar that is gaining strength against all other currencies.
Experts say this, in other words means that Pakistani economy is so strong that it is matching the strength of the strongest currency in the world. They point out that Turkey is one of the most dynamic economies of the world but its currency has devalued by over 25 percent in one year to close the gap with the ever declining euro. Turkish exports, he added have remained buoyant because of this adjustment. One reason for the government’s reluctance to allow devaluation of Pak rupee, the experts added is that traditionally a weak rupee is viewed as a sign of political weakness. This is the reason that Finance Minister Ishaq Dar remains a staunch supporter of strong rupee they added. “We lost our way from the start of 21st century when export oriented growth was abdicated by the governments in favour of imports,” said market analyst Benish Toor. She said in 1999 our exports were $8 billion and imports were worth $9 billion. Today, she added against exports of around $24 billion our imports are worth $44 billion
So, Benish said, the government finds little incentive in the devaluation of rupee which was there in 1990s when our exports matched the imports. She said these are not normal times as two of the most used international currencies are moving in the opposite direction. Over 30 percent of Pakistan’s exports go to the European Union. These exports, she added are under threat as the euro has weakened against the rupee. She said countries that allowed their currency to devalue will gradually replace Pakistani exports. “Stability of currency is crucial but it should not be confused with maintaining parity with US dollar. When all other currencies including Euro, Yen and many developing economies are devaluing, why Pakistani currency cannot follow suit?” she wondered. Benish revealed that in the last 16 months, dollar has appreciated by 24 percent against euro, 16 percent against Yen and 14 percent against the British pound.
“Exports of services and goods are crucial for Pakistan which needs to be increased from around 10 percent of our GDP to at least 25 percent in the next five years,” the analyst said. She asked government planners to realise that Pakistani exporters face many challenges that are not faced by competing economies. This includes high energy rates and its shortages, weak infrastructure and until a week back high interest rates. They have to be compensated for these drawbacks, she added. If Pakistani planners want to see Pakistan as an exporting country, they need to start acting prudently.
Senior market analyst Dr Shahid Zia said that despite massive decrease in petroleum rates (which till last year accounted for 30 percent of our total imports) the import bill increased whereas exports declined. This trend, if continued, would ruin the economy, he warned. He said exports could be boosted through market based rupee value, which would also curtail imports as they become expensive. He said the planners particularly the architects of trade policy should look for ways to control unnecessary imports. “The import of all luxury items should be stopped. The withdrawal of exemptions planned in the coming budget must include the exemptions granted to VIPs for import of luxury or bullet proof vehicles.” This, he added would impact the prime minister, the president, chief ministers judges and many others.
Dr Zia said the government should target a reduction of at least $4 billion in the import bill and addition of $4 billion in exports next fiscal through a prudent trade policy. He said agriculture the world over is protected with heavy duties while we allow items like fruit juices, processed and powdered milk used by richest families at low duties. He said when many reputable multinational and domestic firms are producing these products in Pakistan, there is no need to allow their imports at low duties. He said by keeping the rupee at unrealistic high value we are in fact encouraging imports.