This morning commenced with the news of PKR falling by more than 7.5% in a single day against the USD. The news matched the culmination of hundred day completion and an achievement ceremony marked by the PTI govt. With panic reaping in public, government and particularly its economic team under Asad Umar was mocked with ‘tabdeeli, tabdeeli’ rhetoric on Pakistan’s social media.
The trouble sensed by Pakistanis is not unreal. With PKR’s nose dive, one’s investments devalue and purchasing power declines significantly. If a travel is planned in near future, then budgetary pressure is very much expected as well.
According to many analysts, Pakistani rupee is still overvalued in real terms and may touch the Rs 145-150 per dollar mark in the near future. Oil imports, coupled with severe balance of payment crisis, are leading to an increased demand for the dollar which, in turn, is making the rupee weaker.
Public expectation is that the government must control dollar-rupee exchange rate so that inflationary pressure is not transferred. Common people are seen putting facebook statuses comparing Darnomics with current regime’s policies and due to slump in rupee, expressing displeasure with the PTI govt. The crux of the issue being faced right now is unfortunately based in the flawed policies of former Finance Minister Dar, whose very liberal borrowing with high trade deficits have brought us to this stage.
The best reason to describe Pakistan’s financial woes are its diminishing exports. Under the PML-N government, exports had collapsed to $20bn by 2017, down from $25bn in 2013. Even more saddening is the fact that during PMLN’s tenure oil prices were at their lowest and still our import bill kept rising.
Public wants the government to arrest this rupee downfall, but fact is, sustainable and real issue resolution will only come if we increase our exports. Many people argue that this decline in rupee’s value will be beneficial for our exports. Reality is, as of now, our exports are not competitive and cost of doing business in Pakistan is too high as compared to our regional rivals.
The new government is facing the ire of public for criminal negligence of its predecessor. With dollar demand-supply gap rising, what happened in the FX market today is a core result of last five years of depleting FDI and lack of focus on enhancing exports, particularly our agricultural and dairy produce where in lies a huge potential to improve the strength of our rupee.
Will this rupee slump continue? I’m afraid the answer to this question is yes. Is the current government responsible for it? Hate me for saying it, but as of today they are not responsible. If PTI manages to increase our exports, secures FDI, halts dollar leakages from the system and clamps down on money laundering, they will emerge triumphant and establish itself as a real case study as a reformist government. How long will this correction period take? While no locked time limit can be given, a safe analysis predicts that Pakistan’s economy will be in the correction phase for the next 18-20 months. All the steps mentioned are structural in nature and structural changes will take time. Increasing exports is no child's play and this is the real test of Imran Khan's team.
The bubble of positively biased performance KPIs must be burst to know the real picture and PTI govt should do this at the earliest. Media and opposition may continue to do point scoring, but real leadership is all about taking correct decisions and not popular. Media driven popular decisions should not dictate the government. Rather media should guide the public on real macro-economic indicators and their implications. The inflationary pressure will be difficult for the common man, but correction is a must to resuscitate Pakistan’s dying economy. An overhaul is a must and it will take its time.
- Faisal Ahmad Jafri