IMF dictation: PIAF wants check on rupee devaluation

LAHORE - Pakistan Industrial & Traders Associations Front (PIAF) on Saturday said that massive fall of rupee value continued to damage the economy, as the rupee witnessed a huge depreciation from Rs123 against the US dollar in 2018 to Rs177 in Dec 2021, a decline of more than 30% over the last three years- one of the highest devaluations of local currency in Pakistan’s history.
PIAF Senior Vice Chairman Nasir Hameed and Vice Chairman Javed Siddiqi, in a joint statement issued here, observed that besides increasing exports and controlling imports the government will have to take administrative measures, as a large demand of cash dollars are seen in the market.
Nasir Hameed argued that this devaluation of the currency was dictated by the IMF through prior actions and it has nothing to do with macroeconomic fundamentals. He said that there was a complete breakdown of economic policymaking as the country’s fiscal policy had become subservient to monetary and exchange rate policies. He said that the monetary tightening and exchange rate depreciation resulted in higher inflation, public debt and debt servicing. The empirical evidence showed that the one percent monetary tightening hiked the inflationary pressure by 1.3 percent in the case of Pakistan.
He said that the US dollar continued to rise against the rupee, reaching a record high of Rs178 in interbank trade amidst growing current account deficit.
Commenting on the persistent decline of the rupee against the dollar, Nasir Hameed Khan said the rupee had plunged by 30 percent against the dollar over the past three and half years while the value of other currencies in the region had declined by hardly two to three percent in this period. This indicates that the pressure on the rupee is consistently increasing, he said, stressing the need to devise a strategy on war-footing to increase foreign investment in Pakistan so as to stop the upward trajectory of the dollar.
Nasir Hameed said that the continuous increase in imports is fuelling the dollar’s demand in the market, saying that there was a possibility of imports rising to the record level by the year’s end. However, if the approval of a $6 billion loan package by the International Monetary Fund and the immediate delivery of $1b on that account from the Fund could improve the situation, he said.
Vice Chairman Javed Siddique urged the government to control volatility of rupee against the US dollar, as the industrial revival and economic growth is not possible without stability of local currency. He said that Pakistani rupee continued its downward slide against the US dollar.
He said the massive devaluation of currency fueled inflationary pressures, adding that two major factors contributed to the price hike. First, the prices of food and commodities as well as fuel prices skyrocketed in the international market, and second, the depreciation of the exchange rate by 30 percent also led to higher inflation. He said that 10 percent devaluation of the currency raised the Consumer Price Index (CPI)-based inflation by 0.6 percent. As a result, the 30 percent depreciation resulted in increasing inflationary pressures by approximately two percent. This indicates that from the inflation standing at 11.5 percent on a monthly basis, nearly two percent comes through depreciation of the exchange rate.

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