Pakistan’s economy seems to be slipping and unless we change course quickly the quagmire may simply become too messy to escape from. One of the principal reasons for the current impasse is the rapidly declining value of the Pakistani Rupee. Unless an economy can defend its currency, the rest sooner or later becomes meaningless. Of late in our region, other than us, we have seen this phenomenon also play out in Iran, where despite being an oil rich economy its Rial has dropped more than 70 percent since 2018, as a result not only punishing the poor and an aspiring middle class, but also in the process making them increasingly alienated from the outside developed world—trivial things are turning into significant issues as we see even the Iranian middle class struggle today to keep up its basic daily coffee consumption habits, a country known for its exceptionally high per capita coffee and Qahwa intake. Pakistan’s Rupee similarly has also lost almost 70 percent over the last 4 years, but unlike Iran, with no oil income in its resource-bag! So, it does not take much imagination to ascertain the plight that an average Pakistani would be going through at the moment. Even when there was a barrage of criticism from all corners accusing Ishaq Dar of artificially maintaining a high value of the Pak Rupee, this author was consistently writing that the value at 100:1 (PKR:USD) was at best no more than 5-7 percent away from what it should be and what defined by me as the ‘desirable’ value. Pegging currencies in developing economies, especially where the national currency is not a freely tradable instrument, needs a long-term vision and a holistic approach. For any student of economic history who has closely looked at recent years successful currency management by developing economies, it is clear that the strategy in almost all cases has been identical: Start by keeping the actual currency value lower by anywhere between 20 to 40 percent than the perceived real value and thereafter just maintain the level till such time that economy starts churning out a sustainable external account surplus. This period can be anywhere between 10 to 15 years during which the exports enjoy the beginners edge and get almost a period of one and a half to two decades to shore up productivity in order to counter both, the ultimately inevitable rise in the currency value and the expected interim inflation. The very notion of supporting exports through periodic devaluations is flawed and invariably leads to a vicious debt trap stoking poverty. Rather, on the contrary, sustainable export growth comes only as a result of a stable currency.
US, 11 nations welcome weekend elections in IraqTo quote a few examples, China upon joining the WTO was accused by the West of supporting a Renminbi undervalued by as much as 40 percent, but it remained steadfast by simply maintaining a fairly consistent Yuan/Renminbi currency parity with global currencies while unleashing policies internally that supported innovation and productivity. Of late in the last 10 years or so, its currency has gained almost 20 percent against the USD without affecting its export growth. And this in-turn has resulted in its per capita increasing by almost a 100 percent in dollar terms over the last 10 years, meaning not only eradicating poverty by more than 30 percent (400 Million Chinese), but also making an average Chinese richer by manifolds. Study the currency patterns of the other Asian tigers and the story again comes out as being no different. Of late Bangladesh has followed an identical path where it has kept the Taka’s slide in check, but has still been able to almost double its exports in the last 10 years mainly on the back of policymaking, institution building and growing productivity. For Pakistan though, with the Rupee already at 170+, the consistency mantra right now may unfortunately not be an option, as in the author’s view despite the prevailing economic dynamics the PKR’s real value today is undervalued and should in effect be at 150:1 USD mark. The loss of 20+ rupees has more to do with future perception than any real denominators. In my humble opinion the government’s top priority should be to shore up the Rupee’s value and following steps if implemented immediately should help.
