Rejoicing signs of rupee stability

Future currency stability and economic security lie in growing IT exports

KARACHI:

Bad news is aplenty. Pakistan is yet to clinch IMF’s nod to complete the ninth review. Political temperature is not dropping despite assurances to the Supreme Court. Country is in the midst of economic meltdown tick by tick as a lot of damage is being done.

Policymakers have let go the fixing of rupee mantra and that has resulted in first two months of currency stability. In the current uncertain economic environment, the rupee stabilising around Rs280 against the mighty US dollar is a welcome sigh of relief. But is it enough?

Pakistan’s trade deficit has been deliberately strangulated to arrest dollar inflows whatsoever. Only “need-based” imports are allowed and that too with dismaying delays. This seems intentional as differences of opinion persist between the IMF and policymakers over the need for external financing.

Any current account surplus these months would prove handy as $3.7b of repayments abound in two months. We may tide it over due to the UAE, Saudi Arabia and China’s support. Now, the IMF wants a review of budget for next year.

This may be a hard sell as to grab electoral votes, the election year seems to be fiscally most imprudent. Choices have narrowed this time around as the IMF wants step-by-step guarantees of their wish list – or our prescription list – and spending any money more than necessary is a red line.

All subsidies need to be reverted. Exporters are not getting cheaper long-term financing (LTFF, TERF and ERF), nor subsidised gas or electricity and any preferential rates on major inputs. Their plus point of sharp rupee depreciation isn’t enough to pull exports into double-digit growth yet.

Similarly, the imported economy has ground to a halt impacting the overall economic activity, employment rates, expansion plans, profitability, consumption and tax revenues, consequently.

Despite IMF’s inflows, imports would take a while to recover to sustainable levels as pent-up demand gets addressed moderately. It’s only our domestic economy (largely informal in nature) that has continued to survive compared to the agony witnessed for the salaried or middle class.

Despite the dark clouds, there does appear some form of silver lining. The UAE and Saudi Arabia have committed dollars, China has rolled over debt, FX reserves are inching upwards (commercial banks’ one as well), trade deficit has bottomed out and the State Bank of Pakistan has shown stick to exporters delaying repatriation of proceeds.

However, it still doesn’t seem electioneering climate yet as parties are yet to present a drastically different economic manifesto except rhetoric.

Recent news highlighted that exporters reap Rs80 billion ($350-400 million) of export subsidy in the form of regionally competitive energy tariff. If the incremental import was $3-4 billion in the year, that isn’t a bad addition.

What would have been a better use is setting up world-class 30-40 IT schools worth $10 million each or giving $3,000-4,000 grant to 100,000 students in the form of education sessions from leading IT universities offering distant learning programmes.

That would have been a watershed reskilling moment for the country giving sustained revenue by exporting their skillset online.

Next few years would remain challenging for Pakistan as it should fight the war on economic terrorism by reducing local and foreign debt, increasing tax revenue by capturing agriculture, real estate, traders and services, privatising loss-making entities, putting faster railways via public-private partnership, enhancing agricultural yields, making it easy to set up globally integrated industries, documenting black economy (demonetise) and most importantly, putting labour to use by reskilling them with dollar-yielding knowledge.

Your writer is not a proponent of “fixed” currency regime, however, over a long run the currency should only depreciate moderately by 4-6% per year while taking quantum leaps in exports and direct taxes growth.

Pakistan’s leading IT company – Systems Limited – has become the top-weighted company on KSE-100 index on a free float adjusted market capitalisation basis.

This should be comforting for policymakers that future currency stability and economic security lies in growing IT exports. Otherwise, the painfully earned two months of rupee stability can spiral out of control if we do not aim sustainable, efficient and equitable growth.

Let’s save whatever is left of those skillful employees who are still betting on the country’s future. Two good years can change the course provided new set of leaders reshape the economy.

In January 1998, Indonesia’s currency lost 50% of its value in five days in Asian financial crises. In 2003, they said goodbye to the IMF and today they are seventh largest economy in the world on purchasing power parity.

Pakistan can regain the glory, just as they have regained number 1 slot in world ODI cricket.

The writer is an independent economic analyst

 

Published in The Express Tribune, May 15^th, 2023.

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