The Pakistani rupee fell to a 13-month low on Friday at Rs168.02 against the dollar. The rupee has been depreciating on a worrisome rate since May this year. A steep fall of almost 10% from Asia’s best performing currency in March to worst in September is due to a surge in demand for the greenback to pay for imports, rising inflation at over 8% and negative interest rates. The changing situation in Afghanistan since the Taliban takeover has also added pressure on the home currency.
According to official data, an estimated trade of $6 million exists between Pakistan and Afghanistan on a daily basis. The reluctance of Washington to release Afghan assets is likely to make it go bankrupt, which could further strain the rupee. It is then a welcome move by the Finance Minister Shaukat Tarin to consider trading in rupee with the war-torn country, as it would ease Pakistan’s burgeoning current account deficit which rose to a whopping 133 per cent in August. The coming month may also see the revival of the $6 billion IMF programme as talks between the lending agency and Pakistan are due in mid-Oct, this could further ease the pressure. However, external factors shouldn’t be the driving force for a stable rupee.
The incumbent government must consider paying attention to internal factors to ease the pressure of a volatile rupee on the market. This may include price control. From sugar to grains to poultry and dairy, an increase in food prices is only exacerbating the inflation rate. Just on Friday, the Utility Stores Corporation jacked up prices of various products, including cooking oil and ghee. The government should take stock of it and work towards controlling free manipulation of food prices, instead of letting mafias and cartels work without any check and balance. On the other hand, restrictions on importing luxury or non-essential goods must be imposed. This would only reduce a surge in imports witnessed recently and help curb the widening trade deficit.
Relying on remittances – as the ruling party evidently seems to be doing – or foreign loans, or exports to magically rise to help the rupee from weakening is nothing short of foolish. The government must take actions that deliver results before the situation gets any worse.