But it brings no credit to Finance Ministry
The rupee needed to be devalued. The slide down was therefore understandable. What raised questions was the initial reaction and later explanations on Ishaque Dar’s part. He claimed that the devaluation was engineered by certain individuals and institutions. He then promised to identify the conspirators and take appropriate action against them. None was subsequently named.
The IMF maintains that the rupee is overvalued from 5pc to 20 pc. Pakistani exporters complain that the artificially maintained currency rate hurts their competitiveness. The Commerce Minister pleaded with the Finance Ministry to readjust the rupee value as it gave an edge to the regional competitors over Pakistan as they had already devalued their currencies. The country’s stock market is also feeling the pinch. Concern about the overvalued rupee about to come under pressure was one reason behind some foreign investors fleeing and staying away. Keeping the rupee at its current value was simply against economics.
The State Bank plays the key role in keeping the rupee over-valued at the government’s behest. But could an Acting Governor of the State Bank take a decision to devalue rupee on his own? Did he act at a signal from the top hoping to get confirmation only to find that he was to be presented as a fall guy? Or was there a rift between the SBP and Dar’s Finance Ministry? If so, this would further strengthen the perception that in the PMLN administration one hand does not know what the other is doing. Initially devaluation would lead to imported inflation, increase the burden of debt, cause resentment among the public and damage the ruling party’s electoral prospects. But as the SBP insists this had to be done sooner than later. There is a perception that Dar wanted to devalue without taking responsibility for the action. The timing was important. As Maryam Nawaz stepped into the Federal Judicial Complex, the rupee fell providing the initial excuse to Dar that current political situation was being exploited by certain individuals, banks and entities.
