June 21, 2023 (MLN): Lately, speculations were rife in Pakistan’s currency markets about the rupee’s ultimate downward abode against King US dollar. A few months ago, speculators (not investors) were painting a hyperinflationary scenario of PKR at 350-400 by June.

The government has thankfully plugged the hole by telling banks to use interbank for card transactions foreign payments and keeping current accounts in check. We are meeting our external debt repayments – rolling them over – successfully with Chinese help amid a never-ending impasse with IMF.

Nevertheless, the can being kicked down the road is getting heavier and bigger.

In other parts of the globe, Nigeria had let its currency (Naira) match the unofficial parallel market nosediving 45% against the USD in a span of a few days. Notwithstanding, Nigeria’s USD 30b plus FX reserves and fairly manageable current account amid high oil prices. The unofficial rate in the economy was 60% higher than the official rate, a situation worse than Pakistan’s.

Similarly, despite being externally much resilient, Bangladesh, too, had sought IMF’s support to avert itself from potential crises. A very prudent farsightedness policy-making has let Bangladesh float its currency which has lost 16% against USD in a year.

The interest rates there at 6sh% can be tightened further to rein in the USD outflows and as such arrest Taka’s descent.

Pakistan should have learned the lesson after Covid 19’s stimulus when FX reserves were peaking and the trade deficit was under control. The slow landing of the economy coupled with political flirting with IMF has cost Pakistan’s medium-term creditworthiness.

Bangladesh sought forgiveness from Mr. Market after squandering $15 billion to defend the currency in a year. There is no plan B given mounting FX debt repayments over the next 2-3 years although the hole (trade deficit) is being artificially plugged unsustainably.

By toying with IMF’s bailout, we are playing with the lives of quarter billion people. It doesn’t take a rocket scientist to focus on growing exports, adding value to exports, attracting foreign investment, and stopping importing luxury or non-productive items. We need a countrywide indoctrination of growing exports from Pakistan.

The author is an independent economic analyst and writes at https://twitter.com/AAHSoomro and https://www.linkedin.com/in/aahsoomro

Posted on: 2023-06-21T10:51:33+05:00