Central bank needs to develop a tool to assess the deviation of rupee. PHOTO: REUTERS
“In the short run, the SBP has a major role to play in the alignment of exchange rate and making it favourable for exports,” said Dr Sajid Amin Javed, Head Policy Solutions Lab at the Sustainable Development Policy Institute (SDPI).
Monetary matters: SBP keeps policy rate unchanged at 5.75%
Speaking at a roundtable discussion on the “Exchange rate competitiveness and economic performance: A Pakistan perspective”, he said the SBP needed to develop a tool to monitor and assess the deviation of rupee from its fair value so that ambiguities could be avoided.
In the medium term, the country needed to create a favourable business environment and in the long term, it should focus on increasing the labour productivity, a statement quoted him as saying.
Nadeem Ahmed of the Social Policy and Development Centre said Pakistan needed to explore African markets to increase its exports, as Africa was a growing emerging economy.
Moreover, the country is in need of skilled labour and innovations for the much-needed surge in productivity and exports.
He underlined the importance of structural reforms to align the export and import policies according to future demand. “For an oil-dependent country such as Pakistan, a prudent exchange rate policy is a must,” he remarked.
Replying to a question, Ahmed said the exchange rate misalignment was a political issue. Sajid Amin of the SDPI said after every election the rupee had been devalued to maintain the credibility of the government.
Safia Minhaj, Assistant Professor of Karachi University, said the undocumented economy was one of the major issues behind the unfair value of Pakistani rupee.
SBP keeps benchmark interest rate unchanged
“We also have to keep a close check on the undocumented economy. Pakistan has 50-250% informal flow of remittances which may affect the current rupee-dollar parity, appreciating the rupee above its equilibrium value,” he said.
Ammad Ali, a representative of the Applied Economic Research Centre (AERC), said, “we have to follow the countries which make gains from trade through devaluing their currencies.”
He added the exchange rate competitiveness was a major determinant of the tradable sector performance and fall in the value of currencies of trading partners had resulted in rupee’s appreciation. “The SBP needs to tackle the imbalance.”
Aadil Nakhoda, Assistant Professor at IBA, linked the low export performance of Pakistan with the restricted trade policy. He stressed that the government needed to use the free trade policy rather than intervention in the market and fixing the exchange rate.
He said the country had to use the option of non-tariff measures instead of tariff measures which further restricted the exports.
Published in The Express Tribune, November 29th, 2016.
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