Disaster looms amid drop in rupee, reserves, remittances

ISLAMABAD: The rudderless ship of economy is heading towards a disaster owing to the persistent drubbing of the rupee against the dollar in the wake of dwindling foreign exchange reserves and remittances, and possibility of a sharp rise in inflationary pressures.

Now such depreciation of the exchange rate will result in an increase in the POL prices and the same will apply in case of an increase in the fuel price adjustments (FPA) in the wake of furnace oil and imported RLNG becoming dearer in months ahead.

Headline inflation as well as core inflation is expected to further go up so the policy rate would also be increased under the IMF conditions.

A doomsday scenario is looming large with the possibility of heading towards steep “stagflation” on account of lowering GDP growth and an upsurge in CPI-based inflation in months ahead. Its ultimate victim would be the poor segments of the society because stagflation would push up poverty and unemployment.

Persistent decline in the exchange rate has crossed the mark of Rs300 against the US dollar in the interbank rate owing to the increased demand for dollars for clearance of imports, payment of dividends, and materializing structural benchmark condition of the IMF under $3 billion Standby Arrangement (SBA) for keeping the difference between interbank and open market not more than 1.25 percent.

The structural benchmark has now breached, as this difference stands at around 4.5 to 5 percent. But the State Bank of Pakistan (SBP) is not ready to say anything on record. The same is the situation related to the Ministry of Finance after assumption of power by the caretaker setup. When official spokesman for the SBP was inquired about continuous depreciation of exchange rate, the response was “no comments”.

At least, during the PDM-led regime, the then finance minister Ishaq Dar had always preferred to show his muscles against speculators but now no one seems in the mood to comment on the prevailing situation.

The Ministry of Finance has issued just one statement so far stating that the caretaker Minister for Finance Dr Shamshad Akhtar had arrived in the Q Block and assumed the charge.

The caretaker PM has selected Dr Shamshad Akhtar as Minister for Finance and Dr Waqar Masood as Advisor to PM on Finance with the status of minister of state but so far no division of work has been done to assign the responsibilities.

The collective responsibility is no more solution because it will not help determine the Key Performance Indicators (KPIs). So, there is a need to distribute the responsibilities in order to hold someone accountable at the end of the day.

In the prevailing difficult economic situation, the current account deficit witnessed rebounding and stood at $1 billion for July 2023 in the wake of reduced exports, remittances and increased imports.

The widening gap between interbank and open market rates will further reduce the possibility of luring remittances. On the internal front, the FBR’s revenue collection has also lagged behind than the required growth to materialize the annual target of Rs9.4 trillion.