Aug 13 - 19, 20

The depreciation of the Pakistani rupee against US dollar which has been a major issue since the beginning of 2008 has nearly stopped economic growth in all major spheres of the economy. The rupee has touched a record low of 94.80 against the greenback in interbank market and 95.40 in kerb market.

The widening current account deficit, excessive government borrowing from the State Bank, absence of foreign flows increasing oil imports, lack of foreign investment and repayments to the International Monetary Fund are major reasons for the constant depreciation of the Pak rupee.

The worsening economic condition in the country, the deteriorating law and order situation, energy crisis and terrorism are the main causes of the sinking rupee which witnessed sharp devaluation in the last few years.

Various macro economic sectors which are predominantly relying on imports have experienced an increase in their cost of production. Depreciation of the rupee is intensifying the cost of doing business and badly affecting the industrial and manufacturing sectors as Pakistan has to import fertilizers, food items, oil, machinery and industrial raw materials.

The depreciation of the currency is not always favorable for the economy, as it is one of the many ways to push up the economy's export. For a short term the depreciation of currency may be better for the country but in the long term this does not only result in loss of exports, but for the entire economy as a whole.

Pakistan was expecting to contribute to its deficit through financing the Coalition Support Fund, US aid, 3G auction and Etisalat payments but this was not materialized. This exerted pressure on the financial account and the rupee started weakening against US dollar.

Pakistan is also paying back the IMF with three tranches of $1.2 billion and other debt obligations around $1.7 billion made by the government. The outflow of dollars, and debt servicing, has exhausted liquid reserves.

Constant adverse trade balances and the disequilibrium in balance of payment compels Pakistan to depreciate its currency. Adverse trade balance is generally the result of slackness in exports in comparison to imports.

The markets for Pakistan's traditional export are inelastic, therefore depreciation of the currency may in fact give no big encouragement to its exports, because there is a small quantity of value added exports and major requirement is based on export of raw material. Furthermore, the quality of export is not competitive in the international market.

Pakistani rupee is losing fast against regional currencies as it remained just half against the Indian Rupee and the Bangladeshi Taka also appears much stronger than the Pakistani currency. To get 100 Indian rupees, we have to pay Rs185 to Rs190. One hundred and twenty-five Pakistani rupees are required to get 100 Bangladeshi Takkas.

Bangladesh received some good achievements in textile exports but it is not a large economy with good resources. India showed strength in its economy during a year when the global economy was in a critical situation because of the economic and financial crisis in the United States and Europe which finally absorbed the entire banking world.

On the other hand in this hour of financial meltdown Pakistani currency depreciation was more domestic than the global phenomenon. Its high inflation and poor economic performances shattered confidence on the local currency.

Pakistan's foreign exchange reserves are in a precarious condition. It is likely that the rupee may reach the Rs 100 mark against Unites States Dollar if the balance of payment situation is not corrected.

In the midst of escalating oil import bill as well as repayment of $2.6 billion to the IMF the local currency situation will be further worsened in the forthcoming financial year 2013. However, uninterrupted increases in remittances may solve the problem of repayments easily and will result in the stabilizing of the exchange rate.

The price of imports are anticipated to further increase which will only put a maximum burden on the entire economy and the export industry, as the cost of production for the export goods in directly related to the imported good.

The Government should take immediate measures to control further devaluation of rupee to avoid more damaging consequences for the economy. Further fall in the value of the rupee will cause more dwindling in economic activity leading to reduced tax revenue for government and huge foreign debt.

In this context the government should speedily halt this grave trend to bring stabilization in exchange rate to protect national economy from further impairment.

Depreciation of the rupee at its current stride won't step up exports, rather will certainly expand import bill and inflation. It will also lower the competitiveness of Pakistan's business and industry.

A long term ambitious plan is required to put the economy on the right track. This should provide a model for exporting value added branded products, bettering the quality and image of existing products, finding new export markets and better aggressive marketing strategy.

We should try to adequately utilize the human resources, which is sufficient in Pakistan and is not fully exploited. Furthermore, cut in unnecessary government expenditure, improvement in budget and trade deficit, multiple and persistent exchange rate would also be of great assistance. Merely depreciation of currency is not the solution of the current economic crisis and should not be resorted to in near future.

Every section of economy is interconnected, like currency is attached with economic performance. Pakistani rupee may fall further if economy does not improve and war like situation in North of Pakistan is not stopped.

Exports are not in good condition since the cost of doing business has gone up in Pakistan and is the highest in the region which means less chance for lowering of the trade imbalance. This big size depreciation would ultimately hit the exports as the imported raw materials would be costlier.

The State Bank and other stakeholders much check this situation which could be catastrophic for the entire economy in the near future.