Now or never

The historic decrease of rupee against the US dollar was an unprecedented event that was never witnessed before in the 74 years history of Pakistan. From 1947 till 1988, we went to the International Monetary Fund (IMF) four times; however, 1998 onwards, seeking an IMF package became more than a fashion for any government, especially since no government wanted to reduce its expenses. The attitude was the same, whether we talk about the ministries, state-owned enterprises or the provincial governments.

Despite there being no end to expenses, the focus was never on reviving the agriculture sector, or working on the small and medium enterprises to make them more viable to transform the country’s economy in the long run. Thus, instead of building the capacity to pay back the loans, the government continued to borrow to service the previous loans.

Nobody can guess where the country is currently headed in terms of the exchange rate. The business community and the masses are in utter confusion as to why the people of Pakistan are

compelled to purchase petroleum commodities at the rate of Rs138 per litre, an unprecedented occurrence.

There is no doubt that depreciation of currency is the mother of all evils, and now Pakistanis may have to forget about any substantial recovery in the rupee.

It has been in freefall. The rupee continues to plummet against the US dollar, spreading shockwaves all over the economy. The currency has lost a considerable amount of its value in the last four months.

Falling from 152 against the dollar to the current level of 173, it has forced the experts to call this depreciation as the steepest fall in a single span of time in recorded history since the time the currency was linked to the dollar in the early 80s.

In the last three years, slippages of the rupee have been even more striking.

This slump is owing to a slip between the cup and the lip as Pakistan could not retain stringent regulation on its current account deficit, besides letting imports swell for reasons of developmental proximity.

This has hit the macroeconomic indicators too severely and led to the rupee’s nose-dive. To further deteriorate this crisis is the situation in Afghanistan, which has increased the demand for the greenback to unprecedented limits.

This nervousness of the rupee calls for a comprehensive approach. None are attending to the vicious circle of demand and supply on the western borders, where an informal economy is the order of the day. It is estimated that around $6 million change hands between traders of Pakistan and Afghanistan on a daily basis; the demand inevitably will circumvent Pakistani coffers. This is one of the reasons for the rupee going sluggish.

But still for a country like Pakistan, that has a trade deficit, a strong currency is a boon, not a bane.

Interestingly, the State Bank of Pakistan (SBP) Governor Reza Baqir defended rupee devaluation in his press talk in Manchester saying it benefited overseas Pakistanis.

“How does it benefit them? Because our brothers and sisters from these countries who send their hard-earned money back home, their remittances are increasing.”

In other words the SBP governor appealed to the overseas constituency, and tried to sell an inherently unfavourable policy as beneficial.

As if the rupee fiasco was not enough, the government has failed to control prices of essential commodities.

Inflation is at nine percent, and the sensitive price index has risen to 12 percent, which is the highest in this region. There are mafias and cartels that hold sway over prices, and are free to manipulate them, with no interference from the regulatory bodies or the governments, both in the centre and in provinces.

The government seems like a hapless spectator. On daily essential items, there is no price control nor any checks and balances. It seems to be an abdicated territory for the government. Will Prime Minister Imran Khan act and nail down the hoarders and rupee manipulators? We have to minutely monitor the rupee fall.

Secondly, it is high time that the Federal Board of Revenue (FBR) puts a temporary ban on the import of all luxury items till the rupee posts substantial recovery. We have to curtail the import bill, come what may.

The federal government should form a taskforce with representatives from the Commerce Ministry, SBP, and the Federation of Pakistan Chambers of Commerce and Industry to draw up a list of countries with which Pakistan could consider doing its trade in rupee.

Currently, we are spending almost three dollars on imports for every dollar earned from exports, and we cannot afford to keep imports this high, as we are paying a heavy price against the IMF package of only $6 billion.

At a time when the foreign currency reserves are at a peak, the SBP seems to be clearly using exchange rate depreciation as a tool to make imports expensive; however, so far, this mechanism has failed to stop the rising trends in imports.

The prime minister should take immediate action, and realised the gravity of the situation as it was not suitable for Pakistan’s overall national security.

Even last month, Fitch revised down its forecasts for the Pakistani rupee for 2022. The ratings agency expects an average rate of 180 versus a previous forecast of 165. It is a situation of now or never.

The writer is Vice President of Pakistan Businesses Forum