KARACHI:
Pakistan’s economic problems are now ridiculously notorious. High dollar debt, poor tax collection, rampant corruption, inefficient state giants, meager exports, and dysfunctional energy markets have become trademarks.
Barometer of mess under surveillance in the form of currency movements. For 15 years, the Pakistani rupee has repeatedly fallen from 60 rupees to the US dollar. dollar up to 240 rupees for dollar (and I think). The newspaper loses its sovereignty.
Without going into historical details, several roots can be distinguished. causes explaining the eternal descent of currency: an anemic 7 percent export-to-GDP ratio driven by expensive energy, low value added, low productivity in agriculture, rent seeking, rewarding alternative real return of property and inadequacy policy continuity.
Similarly, due to a bad internal business climate, romance with foreign investors dried up up not bringing technology-transfer, global connection, work-creating and value-added foreign direct investment.
Foreign firms don’t bid on long-term business opportunities in pakistan and charm of rising the middle class is no longer attractive, except for some start-up investors.
However, the IMF deal was expected to give the appearance of currency markets reeling from dual political instability and an economic downturn driven by energy prices. crash landing.
During the corresponding period, the rupee fell from 175 to 240 rupees per person. dollar on July 30, 2022 only to see the losses change to Rs 215 per person. dollar as the IMF Executive Board approved Pakistan’s requests for financial assistance. Roller coaster ride is over with sigh of relief. Nerves again undergoing testing.
Pak rupees dropped back up to 230 rupees for dollar as investors doubt that the IMF deal was enough amid rising political climate. Differential between inter-bank – in which banks trade with each other – and open market rose to 10 rubles.
Authorities ask arriving passengers to follow the rules with Details of dollars, state bank of Pakistan requests pre-approval for export of US dollar currency smuggling to Afghanistan and the state of the UAE of 5000 dirhams on arrival.
Nonetheless, cause of anxiety has been climbing of “Royal dollar”. US dollar breaks records against yen, euro, pounds and possibly yuan.
The US Federal Reserve is hawkish about raising interest rates to attract capital, restore global dominance, de-rate other economies and shut up dollar skeptics. Uncle Sam domination back and emerging market and developing economies are having a hard time, not to mention fragile economies like Pakistan’s.
BUT key measure of US dollar US power dollar index against basket of global currencies. Above last In 12 months, the index rose by 18%, while the rupee lost 37%. against US dollar21% higher depreciation.
In a similar way, on On August 1, 2022, the rupiah lost 42% in one year while the US dollar index was up 14%, difference 28%.
Despite initial unrest, the Pakistani rupee, on on a relative basis, has become marginally competitive and moving in tandem with changes in US dollarx global strength.
Since August 15, the rupee has depreciated by 5% against dollar in compared to a 4% increase in US dollar index. Thus, currency markets primarily reflect global market only trends.
Although it is difficult to predict the peak of US Federal Reserve rates, the hike was sharp, unprecedented and possibly growth stumbling. Politicians will signal “pause» when risks of recession, bankruptcy and financial the collapse of the markets overshadows fears about inflation.
Until then, it’s time to save the domestic monetary policy prudent, focused on restore the export base, return the investor confidence and keep the rhetoric at bay.
The author is an investment specialist. with heightened interest in political economy
Published in Express Tribune, 5 September.th2022.
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