More current account strain
There’s not much time left in the present electoral cycle – less, still, if the JIT mess worsens – but Dar sb had still better keep an eye on remittances, at least, since the black hole emerging there will, eventually, impact the rupee-dollar rate at a time when he, more than anyone else, is politicising the exchange rate. It turns out that overseas Pakistanis’ remittances shrank by at least three percent last fiscal. Less forex inflow is always bad. But it’s much worse when other components of the balance of payments are equally, if not more, compromised.
That, of course, bites into the current account deficit which, as Dar sb no doubt knows, widened by 131pc in the first 11 months of the last financial year. With exports in coma for the duration of the PML-N administration, and the current account deep, deep into red, the rupee is only going to come under increased pressure. And the able finance minister might have been able to fend off the demons of devaluation this once, but how long will his bullying win over natural market pressure? Sure, the rupee cannot be allowed to trade at its natural level – debt servicing, high inelastic import cost, etc – but the present rate just makes exports too incompetitive in the present setting. Bad timing, and politics, therefore, on part of the finance minister to associate the exchange rate with political maneuvering.
The only way out of the BoP death trap is stimulating exports, since there’s little likelihood of remittances reversing the downtrend. And that will require far more than preferential quotas, trade deals, even FTAs. Pakistan desperately needs to expand and add value to its export basket, which is a long term project. So far, sadly, no government has even expressed the willingness to take this particular bull by the horns.