There is no end to the free fall of the rupee that has dropped to a new all-time low amid political instability in the country. The rupee has been losing its value against the US $ on a daily basis since the Pakistan Tehreek-e-Insaf (PTI) won Punjab’s by-polls with a big margin. Reportedly, on Wednesday, the rupee was trading at 225 per dollar, after the Fitch rating agency revised its outlook for Pakistan sovereign debt from stable to negative. The local unit has weakened 18 percent so far since December 2021.
There are a number of reasons for the present fall. Experts believe that the likely change in the Punjab government and Centre are taking its toll on the Pak currency as the future of the PML-N government seems uncertain. A delay in reaching an agreement with the International Monetary Fund (IMF) is being cited as another reason for the devaluation of the rupee in the local and international markets. On the other hand, Finance Minister Miftah Ismail did not see any reason for the persistent depreciation of the rupee, he, however, has held market speculations and betted responsibility for the turmoil. Precisely, we are losing the value of our money and the situation demands effective positioning of our finances to navigate through these rough waters. Presently, the situation is bleak and can lead to more crises in the coming days in the form of inflation and comparatively a higher import bill as Pakistan mostly relies on foreign buying instead of relying on local products in most of the sectors. It is another problem for the Pakistani economy that it is heavily dependent on imports for even basic commodities. The depreciation of the Pak rupee raises import costs and ultimately brings more inflation. Secondly, the debt servicing cost of foreign debt also becomes very high for the nation. Thus, the depreciation of the Pak rupee is not without risks. From essential commodities to glamorous gadgets, the depreciating rupee hurts in many ways. Continuing rupee fall makes crude oil, fertilisers, medicines etc. costlier. Besides, the cost of setting up and running a business becomes heavy. This in return reduces the production of goods and services, resulting in declining exports and increasing imports. If one looks around, one will find that in countries whose currencies are stable or appreciating, their exports are increasing too. Thus, the government needs to focus on the management of resources and keep a balance in the export and import sectors. To avert a disorderly fall, short-term macroeconomic management requires officially engineered depreciation through administrative methods and restraints on external borrowing. In the absence of complementary action, depreciation – whether engineered or market-driven – will make matters worse.
The real way to maintain a balance is to increase productivity and focus on subsidies on selective export items besides controlling imports to live within the means the nation can afford. In this regard, the government can abolish GST on certain export items for making them affordable in the international markets. The government needs to focus on the management of resources and keep a balance in the export and import sectors.
