“Competition for more (gains) diverts you (from Allah), until you end up in (your) graves,” Al-Quran (102:1-2). The current situation of Pakistani rupee is not different from that of a pilot gravitating towards earth just after being ejected out of the cockpit of a disintegrating aircraft, at the mercy of his parachute with little certainty about its deployment; fearing that if it fails to deploy at the right time, his body would rip apart into pieces. Since July 2018, when the incumbent government got hold of its bridle, rupee has witnessed highest-ever depreciation in monetary value of PKR 56 from PKR123/USD to its record high of PKR 179/USD in January 2022. This nosedive against greenback seems uncontrollable; is there any ‘messiah’ who will come to the rescue of this free-falling rupee?!

Numbers never lie; this massive depreciation is due to the burgeoning Current Account Deficit (CAD), which jumped to $5.6 billion for the last quarter of 2021. This two-digit figure signifies the products’ favorability and competitiveness, and state of our economy in the international market and currently, the country imports goods having worth much more than that of its exports; so how does it make payments for the expenditures above the income on foreign trades? Foreign exchange (forex) reserves come to bridge this difference; the only option is to trade-off rupee for dollars by dumping local currency in the exchange thus pushing up the dollar rate.

Wish we were in an Eldorado world with infinite forex reserves. As of December 2021, Pakistan had reserves worth of $24 billion, while our neighbours Bangladesh, China and India amassed $44 billion, $3.2 trillion and $633 billion in reserves, respectively. It’s not problematic as long as the Forex bucket is filled with the export proceeds, Foreign Direct Investments (FDI) and remittances but in our case even after more than seven decades of geographical independence we depend on external debts to fill this bucket. For that reason, our country is ladened with massive external debts, restricting the freedom of local law makers in formulating independent fiscal and monetary policies of Pakistan.

Undoubtedly International Monetary Fund (IMF) has always helped us, but as they say “nothing comes for free”, hence this entitles the IMF to hold the strings attached to the marionette that lays down the policy here in Islamabad. A good example of dictum of IMF is seen by the dovish stance adopted by the State Bank of Pakistan where we witnessed single digit low policy rate since early 2020. This measure amid rising global commodity prices has made it more difficult to increase the competitiveness of our exports in the international markets and simultaneously has made our imports more expensive thus leaving rupee to the vulnerability of further depreciation. Expecting our exports to outnumber our imports would be an elusive dream in a situation where an agrarian economy, Pakistan, has come to an alarming extent of importing agricultural products! As per Grain and Feed Annual Report by United States Department of Agriculture, Pakistan’s wheat imports were estimated at 1.0 MMT for Marketing Year (MY) 2021/22 and 3.4 MMT (for MY 2020/21).

Another reason attributable to this unwanted plummet is linked to the geopolitical turmoil in the subcontinent following withdrawal of US armed forces from Afghanistan. It has stopped the flow of dollars from US into Pakistan for troops previously involved in Afghanistan war and carved an unfavourable imbalance between the inflow and outflow of dollars from the national exchequer of Pakistan.

All these events have a snowball effect in hampering the business confidence and apprehension of further depreciation then kicks off the dangerous capital flight from the country where the foreign investors draw out their capital to safe havens and it is evident from the fact that FDI has decreased to $1.9 billion (2021) from $2.6 billion (2020). This does not stop here; speculators and hedgers also accumulate dollars bills in the present with the intention of selling in future for hefty profits. Waning trust in the official banking channel thrives a parallel Hawala and Hundi system, this has a twofold effect; it narrows the flow of dollars into the country and opens the doors to money laundering without leaving any paper trails. This has obviously uplifted the social status of few but at the expense of what rupee has witnessed over the past few years.

No messiah is going to handle the current meltdown of economy; howbeit, necessitates a meticulous approach through the intervention of SBP for anchoring the volatility surrounding exchange rate. First of all, the practice of non-calculated flux of dollars into the market to artificially support rupee must be stopped, this measure serves no good except for fanning the flames to further depreciation through speculative bidding. Perforce, raising the policy rate to rein in inflation and making local investment a lucrative choice for international investors is a wise choice but it is not going to be an easy walkover considering the stipulated growth targets defined by IMF. It has never been an optimal practice to put a ban on imports or making imports costly just to sponge down the CAD, it is injustice to curb the purchasing power of once an eligible buyer. A more realistic and judicious but long-term policy action is to make exports sufficiently competitive through structural and legislative reforms. Some imports like oil products cannot be replaced with home products; however, Export-Oriented Industrialisation can bring radical changes in the structure of our foreign trade. Broadening the spectrum of secondary industries will prove to be a fruit-bearing effort for an agrarian economy by increasing the availability of refined secondary products, which currently need to be imported. For any development programme to have any success, the government must first establish trust and confidence of international economies in local banking and monetary system and there in no magic wand to do it and only we ourselves must do it.

— The writer is a

professional under

apprenticeship in a

private organisation in Islamabad & is accessible at: nisarahmed.2na@gmail.com