Rupee's instability will hurt industrial growth

Islamabad: When Pakistan's markets open for the week tomorrow, the country's community of investors and business leaders will once again look at trends surrounding the future of the rupee.

In recent weeks, the Pakistani currency has lost ground considerably under the weight of continuing uncertainty. Last week's departure of former president Pervez Musharraf should have been a reason for the economic outlook to perk up, but that has clearly not happened.

On Friday, the stock market and sentiment surrounding the rupee both demonstrated weak pros-pects amid signs of investor confidence losing momentum. The rupee has depreciated more than 20 per cent since January this year after remaining relatively firm for the previous eight years.

For many equity investors looking at the prospects of the Karachi stock exchange, the trends surrounding the rupee are of crucial significance.

Instability surrounding the rupee creates a dangerous scenario, similar to the 1990s, when investors routinely accounted for the rupee to depreciate an average of eight to ten per cent annually.

One immediate fallout of the rupee's instability this year has essentially been that investors have lost confidence in the stability of the Pakistani currency. People of affluence have shown far too many signs in recent months to shift their savings from the rupee to a foreign currency, simply as a clear hedge against devaluation.

The instability of the rupee will haunt industries, including many which are listed on the KSE. If indeed companies are unable to reliably keep track of rising costs of things like imported raw materials, accurately assessing their future sales will be next to impossible.

Vital areas

There are essentially three vital areas where action is necessary to protect the rupee from sharp devaluation:

First, the political discord which continues to engulf Pakistan must be brought to an end. The political dimension to the economy must also be considered as a major aspect of trying to evolve a national consensus on economic policies. As long as there is infighting between different political groups, the cause of a broad consensus is likely to suffer.

Second, there has to be a quick move towards establishing a new team of credible economic managers who are responsible for performing important functions.

Tragically, Pakistan's new government has not even appointed a full-time fin-ance minister. Naveed Qamar, the privatisation minister, continues to shoulder the responsibility.

The finance minister's post became vacant when Nawaz Sharif, leader of the Pakistan Muslim League -Nawaz (PML-N) pulled back his finance minister along with other ministers, when disagreements grew with the government over the matter of restoring judges dismissed by Musharraf.

While Sharif's political differences with the government over the judges issue continues, the government cannot be oblivious to managing the economy.

Appointing a finance minister is crucial to give confidence to the equity and financial markets.

Finally, Pakistan's exports, imports and overall international trade are crucial to stabilising the rupee. However, improving these indicators will ultimately depend in part on the return of political stability and credible economic policies which are in Pakistan's best interest.

The writer is a journalist based in Pakistan.