The Pakistani rupee has been on a downward trajectory since the interim government was set up in June this year and continued the roller coaster ride after the Pakistan Tehreek-e-Insaf took over the government in August this year. There are invisible hands in this country that are ever ready to play great games behind the scene to make gains at the cost of the national economy. They mostly ambush the economy during the period of interim government or at the time of transition of powers from one government to another and rupee happens to be the first casualty.
This time, too, rupee has been under pressure and facing meltdown for the last few months, especially during the interim government when rupee reached 115 a dollar in June. However, rupee experienced a free fall during the two months of the current government when comparison reached 133 rupees a dollar. The core part of the Pakistani financial management is that there is no official secrecy at any level and not only the people, but foreign friends, foes and frenemies all know everything beforehand. When policies are ill planned, economic affairs are mishandled and political elite is too obsessed with its personal matters, the economy nosedives.
In the current situation, how dare any non-state financial actor pulls rupee down to the lowest value without the tacit understanding of the authorities concerned. Rupee has lost ground against dollar by any economic term and the government would have to find an out-of-the-box solution to recover the losses.
The leaders of the new government have great ambitions to develop the country on modern lines, but will have to take time to select a team of economists and financial experts to regulate the unruly economy. Unfortunately, not only secrecy is absent in the official cadre, its capacity to handle the financial crisis is also questionable. As a matter of fact, the transition of powers should not have any impact on the national economic or financial policies, but institutional weaknesses in this country are as visible as the daylight. The current government has collected a bunch of foreign educated experts, who have so far failed to give any direction to the economy.
On another note, there were much media hypes that teams of the International Monetary Fund and Saudi Arabia are visiting Pakistan with bailout packages, but nothing happened on the ground. What should it be called: the leniency of the government or the failure of the regulatory authorities which have allowed devaluation of the local currency, opening the floodgates of inflation, mismanagement and financial crisis.
There are talks in the financial circles that a scheme has been made to slash the value of the rupee up to 24 per cent. Given the current record of the authorities, financial experts and senior bankers opine the State Bank should have to come to the rescue of the rupee without ifs and buts; otherwise it could go as low as 150 rupees a dollar in weeks. The foreign currency reserves have fallen below $8 billion, the worst level as compared to the regional economies and the idea that meltdown is the result of rising demand for dollars is hard to sell.
The economy, which was already growing on a snail’s pace, is facing financial constraints, rising tax rates and hidden inflation. The writ of the government is absent in the markets of consumer items and edibles and everyone is trying to cash in on corruption and profiteering. A strategy to depreciate rupees has always met with failures in the past and there are no two opinions in the notion that the current policy will also meet the same fate. It appears Finance Minister Asad Umar is caught unprepared to handle the economy or has failed to do proper homework before assuming the office. Prime Minister Imran Khan declared on various occasions that he would commit suicide but would not seek any bailout package from the IMF, but the current measures show that the nation is going to be mortgaged again to the foreign financial institutions.
Unfortunately, the political leadership always has to listen to bureaucracy which is the beneficiary of status quo and would not budge from the hackneyed path it has been travelling since independence. Most of the time, it advises the sitting government to take some makeshift arrangements or shortcut measures which turn out to be a long-cuts at the end. Even a small shop needs management, but the bureaucracy has failed to update itself to the changing rules of modern economy and financial discipline. There could also be lacks of vision and capacity to take solid steps for the resolution of the problems.
In a country where writ of the government is weak and corruption is rampant, to cull the rupee value means to cull the economy as all the gains of macroeconomics are lost when the officials responsible are unable to take a judicious decision in the money matters.
However, whatever the case may be, the government will have to concentrate on the industrial and agriculture sector to increase production of goods and services and boost the export sector. When annual exports are merely $23 billion and imports cross $60 billion, no financial or economic expert can do anything to ensure financial discipline.
Pakistan has virtually been converted into a consumer market over the years as even vegetables are being imported from China and India. Once, Pakistan had a strong cottage industry, but it has lost its potential thanks to anti-business policies of the successive governments and unbridled powers entrusted in the officials to pressure small entrepreneurs. Some experts hold unspecified and unclassified customs laws responsible for the failure of the export sector.
Until the government concentrates on a particular sector for the exports of goods and services, rupee will continue to fall in the coming days. The government should have to take urgent steps to stimulate industrial sector and facilitate the business community to enhance exports. Devaluation of rupee will not only increase debt servicing but also cost of production and the Pakistani products will not be able to compete in the international markets.
The prices of imported goods will also increase and will open the floodgates of corruption and smuggling. The official machinery also needs capacity building programmes to break its monotony and actively take part in the development of the economy. In this worst situation, Pakistan still has the potential to generate $30 billion in six months through indigenous resources and without burdening the people with additional taxes.