Depreciation of rupee — a boon or a bane

Published: December 26, 2012
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The writer is Executive Editor of The Express Tribune

The writer is Executive Editor of The Express Tribune

The rupee is taking a free fall. It is now almost Rs100 to a US dollar. A matter of great economic concern? Yes, of course. It means the economy is taking a nosedive. It also means all foreign loans, even the concessional ones, will become costlier. Additionally, imports will become even dearer. So what next? Well, donors would become less inclined to lend, upping their conditionaties to unscalable heights. And the country, without even wanting to be less profligate, would be forced to borrow less and import less. Thank God we produce enough food, at least for the time being, and have been spared the added burden of importing costly foodstuffs. In addition, exports would stand a good chance of becoming more competitive price-wise in the international market because the value of the rupee had gone down steeply compared to the currencies of competing countries. That is all for the good, isn’t it? Yes. In other words, the country saves more and earns even more (if we could manage to mobilise enough exportable surpluses) just because the national currency has tumbled to its real worth.

If it is all to the good of the economy then why so much concern among concerned Pakistanis about the rupee’s ongoing free fall? Well, for one thing, fuel which keeps the economy’s wheels turning and which makes up the bulk of our imports would become intolerably costly and may even wipe out any gains made, if at all, in exports, provided we were to succeed in taking advantage of a cheaper rupee. But more than that, the ruling elite will find it impossible to continue its First World lifestyle without the ‘concessional’ dole and ‘subsidised’ imports of non-essential goods. Official economic managers would go crazy trying to manage the economy without the ‘free lunch’. The two had never learnt how to cope with the hardships of living within available means which is what at least 90 per cent of Pakistanis have been doing all these years.

Our ruling elite and their Gumashtas have always been very keen on keeping the value of our currency at an artificially higher level vis-à-vis the world’s hard currencies because that allowed them the easy way out of maintaining their First World lifestyle while managing a Third World economy. And they had been keeping our major exporters, mostly the textile tycoons, on their side by subsidising their inputs and even their exports using the resources that should have gone to the deserving have-nots of the country. We in the media used to be fed with the misleading notion that a higher-valued currency (even if it is artificially held) meant a politically higher world ranking and reflected a healthy economy. I remember the times when right on the eve of the visits of the IMF’s Article IV missions or at the time of negotiations for an IMF programme, these Gumashtas would visit newspaper offices to brief the editors on the ‘great benefits’ that would accrue to the nation on the political/economic front if we did not succumb to the Fund’s pressure to ‘devalue’ our currency to its real worth. And they would also persuade us to believe that the approval of ‘larger’ concessional assistance by the bilateral and multilateral aid agencies was, in fact, an expression of their confidence in our economic policy and its management!

Remember the Aid to Pakistan Consortium? Every year on the eve of budget presentation, we would go to Paris where all our donors would gather and we would present to them a long list of projects seeking financing. Invariably, the donors would pick only those projects which would serve their economic interests, not ours. A number of studies carried out by independent domestic and international economists have shown that in most cases, 99 cents out of every one dollar of aid went back to the donor countries by way of project-related imports, consultancy fees, shipping freight, etc. However, our ruling elite would be happy with even the remaining one cent, pocketing a good part of it and parting with its bad part for the project without bothering about the ever-increasing debt burden camouflaged largely by an artificially-held rupee value.

Published in The Express Tribune, December 26th, 2012.

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Reader Comments (9)

  • Mirza
    Dec 26, 2012 - 10:04AM

    I agree with this Op Ed in general. Pakistan needs to stop borrowing money at any interest rate. This money is never spent on poor masses or the infrastructure and has gone to making WMD, DHA, missiles and drones. During the long years of Gen Mush the US alone gave tens of $billion but not a single K. Watt of electricity was added.
    All aid cash must stop in all areas. The aid should only be in the form of goods (with full oversight) for primary education, basic healthcare, nutrition in schools, and civilian infrastructure. We do not need more bombs we need tools for agriculture, education and basic technology.

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  • Haany, F.
    Dec 26, 2012 - 11:25AM

    @Mirza:

    “We do not need more bombs we need tools for agriculture, education and basic technology.”

    Apparently your new home country, USA, and your ancestral country, India, are not interested in your advice, and keep making bombs rather than spending the resulting savings on people’s welfare. By the way, why not to dismantle Pak Army altogether and spend this money on what ever you suggest.

    Recommend

  • MSS
    Dec 26, 2012 - 1:52PM

    @Mirza,
    Spot on.
    @Haany F,
    Actually not a bad idea. Pak army is too large. Why not convert half of it into an highly efficient police force that can deal with serious internal threats?

    Recommend

  • asim
    Dec 26, 2012 - 4:15PM

    This was bound to happen when the country law makers become convicted and criminals and there is no one to stop them;
    A 25 years old lady found of wearing cloths worth 30,000$ becomes finance minister and then foreign minister

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  • Gul Metlo
    Dec 26, 2012 - 4:54PM

    This is the real value of our currency, it was overvalued for over a decade at the cost of the economy. This has benefited the corrupt crooks at the cost of common people who produce agricultural commodities and exportable items.

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  • Dec 26, 2012 - 5:25PM

    depreciation of rupee can be a boon only and only if it can be leveraged to compete in the export market.and increase the volume. But other constraints like energy shortage will reduce this benefit.
    Moreover, the total annual import over the export which is roughly more than $5 billion will inflate the burden in addition to having an instant ballooning effect on the existing overseas debt ( in foreign currency). In the present unstable political scenario coupled with the risk of militants / extremist, if the ensuing government could miraculously attract FDI in the oil and gas sector some relief can be expected else there is apprehension of further fall of the rupee in case foreign exchange reserves get depleted.

    At present the rupee depreciation does not look much like that of a boon.

    Recommend

  • Jibreel
    Dec 26, 2012 - 6:23PM

    @ Haany F.

    Apparently your new home country, USA, and your ancestral country, India, are not interested in your advice, and keep making bombs rather than spending the resulting savings on people’s welfare. By the way, why not to dismantle Pak Army altogether and spend this money on what ever you suggest.
    .
    .
    That sound like a BRILLIANT Idea! =D
    Atleast that might make Poverty and Malnourishment Indices in sindh and balochistan might finally rise higher than sub-saharan Africa =)

    Recommend

  • jagjit sidhoo.
    Dec 26, 2012 - 8:55PM

    Devaluation and inflation are hidden taxes

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  • Haany, F.
    Dec 26, 2012 - 11:30PM

    @Jibreel:

    “That sound like a BRILLIANT Idea! =D”

    @MSS:

    “Actually not a bad idea. Pak army is too large.”

    Guess what? You 2 guys have beaten flat out the combined intelligence of American and Indian nations. At least they couldn’t discover this golden formula to improve economy and eradicate poverty respectively.Recommend

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