Dollar through the roof

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Anyone with a business sense could see it coming. The dollar valued at Rs150 before the next budget. We are pretty close. And in spite of a committee formed to stem the tide, it may happen in a day or two.  Yesterday, the value of the US dollar against the rupee touched another all-time high for the second consecutive day, reaching Rs148.

The IMF has already spoken of a market-determined exchange rate and the financial markets have reacted negatively to it. Businesses and stock markets are already wary of the undisclosed conditions agreed between the IMF authorities and the government.

In the past the PML-N government was alleged to have kept the dollar artificially down against the rupees, the question is, as Pakistan is going to allow the market to determine the currency valuation, where the greenback could possibly go from here?

Earlier during the Asad Umar’s time as finance minister, there was a crackdown against currency dealers suspected of hoarding on dollars. This time around, it is hoped the government shall be a bit more innovative in its approach in dealing with the crisis.

Exchange Companies Association of Pakistan representative in a meeting with the prime minister suggested there was no shortage of foreign exchange in Pakistan but it required proper management, saying during the last 23 years $160 billion flew out of the country, an amount far bigger than the country’s total foreign debt.

He further suggested checking the Afghan transit trade, a practice that is on from the past wherein local exporters bring money from Afghanistan, but do not deposit it in banks in Pakistan and instead send it to Dubai and other European countries. By checking this practice, $2bn could be injected into the local economy. He emphasized reducing the imports by banning import of those products which were produced in the country as well as bringing down the cap on travellers’ amount from 10 to $3,000.

The misplaced belief that depreciation of rupee can give a boost to exports should be put to rest as it while gives a temporary boost to the scant imports, it only jacks up inflation rate in the country. It is no substitute for economic growth. Conversely, Pakistan’s economy is heavily dependent on imports for even basic commodities. The depreciation of rupee raises import costs and ultimately brings more inflation.  The debt servicing cost of foreign debt also becomes very high for the nation. The cost of setting up and running a business becomes heavy. This in return reduces production of goods and services, resulting in declining exports.

 

Thus the government needs to focus on managing resources and keeping a balance in the export and import sectors. The real way to maintain this balance is to increase productivity and subsidize select export items besides controlling imports to live within the means.