Rupee nosedives

The rupee dropped to a new low of Rs216 against the dollar in interbank trading on Monday and then to Rs222 on Tuesday as the PTI’s success in the Punjab bye-elections created a new wave of political uncertainty. The crash is unfortunate as the rupee had only just started rebounding after hitting an all-time low about a month back. That recovery was credited to new loans and an agreement being reached with IMF.

Investors like stability and predictability, but some bad current account and balance of payments numbers had begun pushing the currency down since last week, even before the elections. It is worth noting that some reports also suggest that IMF is also thinking twice about the loan programme, since they would prefer to release funds to the same government with which it reached its latest agreement rather than the one that let negotiations drag out for several months. Also, while provincial bye-elections do not have a direct impact on Islamabad, the result is seen as something of a rejection of PML-N’s policies, and they will also weigh heavily on Prime Minister Shehbaz Sharif’s mind as his son’s tenure as chief minister seems almost certain to come to an abrupt end. The bye-election results have also lent new life to the PTI’s calls for snap elections, which does have an impact on investor perception of stability in Islamabad. It should be recalled that after taking charge in 2018, PTI blamed the previous PML-N government for its own subpar economic performance. The economy that PML-N inherited and the one that the next government would inherit if early elections are called, would be far worse.

Given that most economists, including some in PTI, acknowledge that Finance Minister Miftah Ismail’s decisions are tough but necessary, perhaps it would be in PTI’s best interest to instead give him time to continue taking them and return some stability to the economy. If he succeeds, the next government will have an easier job. If he fails, he can fairly be blamed after getting enough time in office to minimise PTI’s direct connections to the mess.

Published in The Express Tribune, July 20^th, 2022.

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