Rupee continues to tumble

Despite IMF package

With the Rupee depreciating against the US dollar for a sixth consecutive day, losing close to Rs11 in a week, all the gains made following the IMF EFF program resumption have been lost. Finance Minister Miftah Ismail made an all-out effort to successfully convince the IMF that Pakistan was indeed willing to play ball in exchange for a much-needed $1.27 billion, but the release of those funds have coincided with an increase in import payments and low inflow, resulting in a short lived Rupee recovery. A number of administrative measures put in place by the SBP on commercial banks to moderate the opening of letters of credit and their retirement have also slowly been eased leading to increased outflow of foreign currency.

A similar rapid decline in the rupee’s value was witnessed around two months back when at its peak it hit almost Rs240 per USD, forcing the government to take measures such as banning import of luxury items, a restriction that was lifted once some stability had been achieved and an IMF breakthrough was clearly imminent.

There was an expectation that once the IMF restored the defunct program, loans from ‘friendly countries’ such as Saudi Arabia and China would be approved as that was the explicit condition for any disbursements. All told, the government was expecting around $4 billion through various instruments as in flows which expectedly will take some time to be fully realized to make any meaningful impact on the foreign exchange reserves figure and in eventually the currency market. IMF’s nod has no doubt removed some of the political uncertainty associated with the current government as it provided economic legitimacy but the fundamentals of the economy and market forces only care for that up to a very small extent, evidenced by how soon the pressure is back on again. Pakistan is devoid of any dependable, sufficient and regular foreign exchange inflow streams. FDI remains at abysmally low to non-existent levels while exports, especially textile, dwarf in comparison to regional countries while any meaningful import substitution remains a pipedream. Short of a long-term plan to grow and develop conventional and new avenues for foreign inflows, the country will continue to depend on handouts and forces out of its control to make imports cheaper.

Another challenge, a necessary first step in fact, which is perhaps at the core of our many problems, is the current and historic absence of a government and opposition with a leadership structure that is committed to a reform agenda upon which there is consensus; one which is neither derailed nor abandoned until fully implemented over a number of years.

Editorial
Editorial
The Editorial Department of Pakistan Today can be contacted at: [email protected].

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