No financial sovereignty | Pakistan Today

No financial sovereignty

  • Or political, for that matter!

It was about time a meeting of currency dealers was called by the State Bank of Pakistan to discuss the plummeting rupee and its journey down into hades.

The rupee had been devalued by SBP by 9pc over the past few days, resulting in the dollar hitting a record-high price of PKR118.3, which further rose to PKR118.5 after a bout of panic buying following adviser to the prime minister on finance, Miftah Ismail’s meeting with officers of the International Monetary Fund and World Bank in Washington, DC. What’s the connection? General Secretary of Exchange Companies Association, Zafar Paracha explains: “People have developed a mindset that whenever government officials attend IMF meeting they devalue the rupee. This situation invites panic buying.”

“There is no shortage of dollars in the open market. We have imported increased quantity of dollars (against export of other world major currencies in surplus) to cater to the demand,” Paracha further explained.

The initial devaluation was introduced to combat the depleting foreign exchange reserves in the country. There were two rounds – and both followed Ismail’s meeting with IMF officials. Who could blame the public in believing that another round of devaluation followed the meeting on Saturday?

The State Bank of Pakistan thus took action and “directed them to narrow down the gap between dollar’s price in the inter-bank and open currency market to 1pc from the current 2.3pc,” Zafar Paracha informed the media. However, this solution is only temporary.

And among other lessons that the government should’ve learnt by now: there’s only so many times an ‘ally’ would bail you out with financial favours at the cost of selling your sovereignty

Reports suggest that the Pakistani government is now looking northward to China to bail its currency out by sending traders our way, who would inject the country’s fledgling economy with fresh foreign exchange.

But, of course, given how both China and Saudi Arabia ditched Pakistan at the 11th hour during the second round of the Financial Action Task Force (FATF) meeting in February – which means that Pakistan faced potential blacklisting should its proposal to curb terror financing not be deemed ‘good enough’ by the FATF in the June meeting – Islamabad can no longer take Beijing for granted.

However, a similar quick fix was implemented by the government over the past few years: as claimed by a member of the Economic Advisory Committee (EAC), the government injected $7 billion into the system to keep the rupee overvalued. The claim has not been denied by any official of the country’s financial machinery.

All of these steps point to one gigantic issue: the government is either uneducated in basic economics and is unaware of the lack of effectiveness of quick fixes when it comes to the economy, or is trying to fool the public by playing dumb and artificially increasing the value of the rupee.

A similar strategy was adopted by the government in the railways department, where Rs60 billion was blown up into smoke in order to paint a rosy picture of the railways. The step was, perhaps, a gamble: deplete a massive amount of money in refurbishing the railways in order to attract more customers and investors, which would, in turn, fuel further (this time concrete) improvements in the sector.

But what if the plan failed (as it did)? Smartly enough, the government had no Plan B to fall back onto in case Plan A failed.

Similarly, the government injected the financial system with foreign exchange just to keep the rupee afloat, and to make themselves look good. This strategy, much like the one with the railways, fell flat on its face when the injected amount depleted, as it had to.

Unfortunately, the government keeps on ignoring one obvious fact: the economy can be kept on life support for only so long.

Without a consistent flow of foreign exchange – which can only be achieved by attracting genuine investors, and not by the artificial coaxing of traders to the country or by introducing dollar saving schemes – and a decrease in corruption, no department of the country can flourish for long – be it energy, railways, or the State Bank, itself.

And among other lessons that the government should’ve learnt by now: there’s only so many times an ‘ally’ would bail you out with financial favours at the cost of selling your sovereignty.

Of course, there are no bilateral favours – especially financial – ever. And as things stand, there really is no practical sovereignty – political or financial.