The dollar rate is now a religious hymn, with everyone from rags to riches quoting it. A country’s currency is one of the key reflections of its economic strength or lack thereof. Chatters and doomsday predictions of Pakistan’s economic default or bankruptcy have invariably put pressure on the Pak rupee.
However, the depreciation – euphemistically, “market determined adjustments” – hasn’t solved problems either. Ironically, without having to declare default of global bond payments, why did the rupee fall more than Sri Lanka’s currency? One that has already defaulted.
As any market determined by buyers and sellers, the more people want your currency the stronger it is and vice versa. It doesn’t take a rocket scientist nowadays to understand that as a functioning economy, you want dollar inflows to be greater than dollar outflows.
Minor outflows are liveable, provided they are for productive uses only. Pakistan’s predicament of low exports to feed population needs of 240m is common knowledge with obvious solutions. In the last five years, Sri Lanka’s rupee has depreciated 106% against the US dollar to 321/$ while Pakistan’s currency has fallen by 164% to Rs283/$. Even on a 15-year comparison, Sri Lanka’s rupee has fallen 204% against the dollar compared to Pakistan’s dismal plunge of 356%. The more our depreciation, the deeper our quagmire. Senior economist and academics still advocate such currency adjustments in their blue prints as it is probably a one-way easy bet.
They are not, however, prescribing the right medicines. It’s time to embrace the fact that currency adjustments have compounded problems instead of solving them. We must acknowledge that our imports as a % of GDP at 15-17% are not the problem. In fact, the ratio of imports per capita is one of the lowest in the world, even in comparison with Bangladesh, India, Egypt, Philippine etc.
Nigeria is the only similar sized country with nearly equal imports per capita. Their oil-heavy export revenues, however, keep their economy afloat while Pakistan is a beneficiary of brain drain (remittances). The Egyptian pound and Turkish Lira are other currencies depreciating more than the Pak Rupee but haven’t defaulted. Nevertheless, as tourist hubs with exportable surplus, their dollar revenues have increased. Double digit annual currency depreciation has socio-economic costs. Businesses find it impossible to forecast and expand production while repeated monetary tightening cycles to arrest dollar outflows reduce industrial profits and competitiveness.
While other countries subsidise exports and import reducing manufacturing, we are forced to reverse good and bad subsidies both to ensure fiscal discipline. The only result is rising unemployment amidst perpetual despair and stagflation. Talented people are hired by global markets while industrialists park money in defensive fixed income products and less productive real-estate assets.
The boom-and-bust cycle is repeated after a few years due to external favourable factors and marginal increase in remittances as labour gets exported. For the next few years, Pakistan needs a steady currency with marginal depreciation of 3-4% per year but the focus of policy makers is only and only on growing exports with fewer dollar inputs, such as technology exports.
In fiscal year 2017, when the currency was stable near 105/$, the annual export of goods clocked in $22 billion. Six years later, with the rupee at 280/$ the exports are likely to marginally increase to $27-28 billion only. So, what exactly was the point of such adjustments as advocated by our esteemed policy makers, especially if we failed to grow the very exports we aimed to address.
Imports could have been curtailed by keeping interest rates at 13-14% throughout the cycle. The lives of hundreds of millions have become so miserable that hatred for policy makers and hopelessness has increased. There is a growing class of youth now becoming fed up with the political tug of war. Constant bickering between politicians, the establishment and judiciary has rendered the country without guardianship.
Those calling the shots have seen their net worth increase over decades – though they wouldn’t deserve white collar jobs abroad – while scores of bright, talented and full-of-potential brains are finding odd jobs, remaining unemployed, being underpaid and captaining Careems/Ubers.
The system may not change. Whether the elections take place this month or in August, the faces are likely to be the same with the same mundane, old fashioned and copycat policies. These people living in posh houses with multi-million-dollars’ worth of wealth cannot possibly feel the problems of 220 million people. Optimists willing to change the system either become part of the system or die trying. Systematic disfranchising of people under the democratic set up where votes are casted on tribal, ethnic, linguistic and religious grounds can never bring a grass root leader to the top.
No wonder many people leave the country behind to seek – and get – meritorious placements abroad. Economists and policy makers should stop the myopic focus on currency depreciation to lift exports. A lot more is needed and is possible.
Scotland is being led by a 37-year-old second-generation Pakistani. Perhaps the average age of policy makers needs to come down from 70s to 40s. Suo moto anyone?
The writer is an independent economic analyst.