The latest depreciation of the rupee—the third since December 2017 — shows the increasing vulnerability of the national economy. This market-based adjustment, as described by the State Bank of Pakistan, comes at an inopportune time and its tremors will be felt by consumers when the country is on the verge of celebrating Eidul Fitr. The rupee fell by as much as 5.38 per cent against the US dollar on Monday, with inter-bank trading ending at Rs121 to the greenback. A weaker rupee is likely to make the price of Pakistani exports cheaper. There is a real danger that the caretaker administration headed by Prime Minister Nasirul Mulk might be encouraged to go to the International Monetary Fund (IMF) for a loan rather than wait for the next elected government to make that decision.
The present situation is indeed dire in the wake of dwindling foreign reserves and the widening current account deficit. Some urgent measures ought to have been taken by the interim government by reordering policies around and effectively curbing imports and increasing exports at the same time. In the long run currency depreciation cannot be used as a single antidote for overcoming our country’s balance-of-payment crisis. Until we fix our fiscal troubles, we cannot hope to improve the economy through currency adjustments. To surmount these troubles Pakistan needs a cocktail of measures. Already foreign reserves stand at a low of two months’ worth of imports.
If the caretakers really want to navigate a way out of the crisis, they should concern themselves first with steps to lower the fiscal deficit and bring down imports. Sooner than later they will also have to revise petroleum prices which have remained stable for long enough. If the task is left to the next elected government, it might be too late.
Published in The Express Tribune, June 13th, 2018.