Who is responsible for rupee depreciation?

ISLAMABAD: With steep decline of rupee against dollar since December 2017, Pakistan is embarking upon the path of dollarization as depreciation alone in last eight months have swallowed public debt in the range of around Rs2000 billion.

Who is responsible for all this mess? People of Pakistan deserve to get answers from ruling elites as now situation has touched to such an alarming situation where the economic gurus seemed helpless to stop continued decline through ability of intervention.

First of all, political instability coupled with inability to undertake required reforms on economic front played havoc and now it’s burnt in shape of rising inflationary pressures will have to bear voiceless poor people of Pakistan. There is need to put things in proper prospective by narrating facts in accurate manner. Many independent economists including Dr Ashfaque Hassan Khan, Dr Hafiz A Pasha and others blamed the policies of last regime for creating mess on economic front.

However, the PML-N and its affiliated economic team does not agree to it and argues that they had performed well in first four years to June 2017 and later economy started declining on external fronts mainly because of political instability created in the country.

In line with improvement in macro-economic indicators and with building of highest foreign exchange reserves in Pakistan’s history as FER touched $23 billion at one point of time during the tenure of PML-N led regime, the Pak Rupee remained stable against US Dollar during the four years to June 2017 except a slide of around four rupees to the Dollar due to the Dharna in Islamabad; the Pak Rupee rates to the Dollar were Rs98.81, Rs101.78, Rs104.84 and Rs104.85 on 30th of June of 2014, 2015, 2016 and 2017 respectively.

After assuming office of the Prime Minister by Shahid Khaqan Abbasi after ousting Nawaz Sharif through Panama verdict by the apex court, four meetings were held between August 2017 and mid-October 2017 to discuss the subject of Pak Rupee / US Dollar parity. Such meetings were attended among others, by Dr. Miftah Ismail, former Special Assistant to PM and then assumed office of Finance Minister, Ali Jehangir Siddiqui (SAPM), Fawad Hassan Fawad (SPM), Tariq Bajwa (Governor SBP) and Shahid Mehmood (former Secretary Finance). Former Federal Commerce Minister also attended one of these meetings.

The sources claim that former Finance Minister Ishaq Dar vehemently opposed any self-slide devaluation of Pak Rupee against US Dollar, as demanded by certain quarters.

He had argued in these meetings that exporters who would have benefited by any Pak Rupee slide, had already been more than adequately compensated through targeted packages of Rs180 billion plus Rs67 billion.

He had also explained in these meetings that any slide of rupee would directly increase the public foreign debt in Pak Rupees.

The public and private imports of over $42 billion would be negatively impacted by higher cost and such slide would directly add to inflation and consequently increased cost of living and cost of manufacturing within a short period, he had further argued.

He further stated it will be discouraging for Foreign Direct Investment. The cost of Public Sector Projects would increase accordingly.

Resultantly, in all said meetings, it was unanimously resolved that no self-slide depreciation of Rupee should be undertaken.

The sources close to Dar said that however, it was puzzling as to why this decision was reversed when he had relinquished his charge of Finance Division in November 2017. The Bloomberg Article of 12th December 2017 stated “The rupee was Asia’s most-stable currency since 2014 until November 2017.”

To put in a nutshell, Pakistan’s Economic performance was good in the four years to June 2017. However, in the post-July 2017 period, some serious challenges have already emerged, which to be handled on priority basis otherwise the incoming government will have no other option but to knock at the door of the IMF soon after assuming office after the elections.