Rupee: rocky ride ahead

Remittances are also down over 10% in current fiscal year to date

Despite the relative success of efforts in recent months to stabilise the rupee and get its value to appreciate, continuing economic disarray means that the currency may be in for another rocky year in 2024. Several economists have been predicting instability in currency markets because while some economic indicators have improved, this is only in relative terms, and there are still no economic indicators that look ‘good’ outright. Key indicators such as inflation and debt are bad enough to actively discourage foreign direct investment, which is one of the only reliable ways to stablise a currency.

Meanwhile, the withdrawal of aggressive import restrictions and certain export subsidies and tax breaks as part of the IMF loan conditions will also bring a return to the days of large balance of payments deficits. The investment targets floated by successive governments — the caretakers are projecting $100 billion through the Special Investment Facilitation Council — are unsupported by any economic fundamentals, and even local investment is being suppressed by the high interest rate imposed to try and keep inflation in check.

Remittances are also down over 10% in the current fiscal year to date, and those same import restrictions that helped erase the trade deficit over the last year have also led to the unavailability of machinery, raw materials and other inputs essential for many export industries. This has reduced output from export-oriented industries, which is already visible in falling export numbers and will continue for the months and years ahead.

It is also worth noting that the harshest critics of the country’s economic policy moves in the last five or so years say that all government policies being credited with improving economic indicators were implemented solely to avoid default — any benefits were just welcome side effects. This also explains the hodgepodge of uncoordinated policies that any new government will have to streamline and synergise if it expects to put the economy on the right path.

Published in The Express Tribune, December 20^th, 2023.

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