Business | Economy
Sliding rupee will add to economic woes
The fall of the Pakistan rupee by about 2.9 per cent last Tuesday comes as a further setback to the country's economy.
- By Farhan Bokhari, Special to Gulf News
- Published: 00:07 July 9, 2008
The fall of the Pakistan rupee by about 2.9 per cent last Tuesday, making it touch a record level because of worries about inflation, widening budget and current account deficits and security, comes as a further setback to the economy. At the same time, the rupee has also been under pressure from a rise in demand for dollars from importers particularly as they seek to settle oil payments.
This latest pressure on the Pakistani currency came a day after a series of small bombs went off in Karachi, the southern port city, injuring about 40 people. Worries over the internal situation have also been fuelled by Sunday's suicide attack in Islamabad, the Pakistani capital, which killed 19 people.
The Pakistani rupee has so far fallen over 18 per cent this year against the dollar at a time of mounting inflation which has accelerated to a three-decade high. Prices of food commodities and daily use goods have gone up, leading the worries over inflation.
The continuing depreciation of the rupee is indeed a disconcerting trend as it would add to inflation and further amplify Pakistan's economic woes. In May, Pakistan's central bank - the State Bank of Pakistan - raised its discount rate to 12 per cent from 10.5 per cent to stability the currency, dampen speculation and combat inflation.
Many currency traders in Karachi noted that another intervention by the central bank may help stabilise the rupee in the short term. But the central bank has also seen its reserves deplete in recent months in the midst of growing uncertainty. The central bank may also be limited in the extent to which it can prop up the ailing currency.
In salvaging this situation, the newly-elected Pakistani government must act immediately and decisively on two fronts. On one hand, Pakistan needs and deserves an immediate end to the politics of discord and disagreement, as seen since parliamentary elections were held in February. Internal political squabbles built around targeting president Pervez Musharraf must be set aside for the moment.
New ground
On the other hand, consideration must also be given to breaking new ground in beginning to stabilise an increasingly moribund economy. This is absolutely vital because there are a number of areas which are badly in need of reform. In undertaking such reforms, several considerations must be central to the government's overall thinking.
For instance, restructuring the government itself must be central to this consolidation exercise. For too long, successive governments have refused to clamp down hard on wastages within the government which unnecessarily eat in to the coffers of the state. It is absolutely criminal for the Pakistani government and the country's leaders to ignore calls for cutting expenditure literally on a war footing, just when ordinary Pakistanis are being urged to tighten their belts.
At the same time, the Pakistani government must also look at ways to effectively jump start the economy but radically improving the country's productive capacity. There are parts of the industry which continue to under-perform, while the agricultural sector for long has received little more than lip service by way of promises of reform.
A journey towards a new Pakistan must be built upon demolishing some of the worst legacies of the old Pakistan. Today, as Pakistan grapples with several major economic challenges with Tuesday's rupee depreciation being the latest one, there is no excuse for a further delay to long overdue reforms.
The writer is journalist basedin Pakistan.
It is absolutely criminal for the country's leaders to ignore calls for cutting expenditure literally on a war footing.
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