Ru­pee un­der pres­sure

The Pak Banker - - FRONT PAGE -

The ru­pee con­tin­ues to re­main un­der de­pre­ci­a­tory pres­sure due to lack of suf­fi­cient ex­ter­nal fi­nances. The tur­moil con­tin­ued to clutch the for­eign cur­rency mar­ketswith last week see­ing the largest sin­gle- day ru­pee drop against the US dol­lar in over a decade. Suc­cumb­ing to the pres­sure ex­erted by the bal­loon­ing cur­rent ac­count deficit and di­min­ish­ing for­eign cur­rency re­serves, the ru­pee saw a de­pre­ci­a­tion when it dropped by 7.5 per cent on a sin­gle day thus set­tling close to the fig­ure of Rs 139. The SBP, ac­cord­ing to me­dia re­ports, stated the rea­sons be­hind this sharp ru­pee fall as: "This move­ment broadly re­flects the cur­rent ac­count dy­nam­ics and also the de­mand- sup­ply gap in the for­eign ex­change mar­ket".

It is ex­pected that the ru­pee will fur­ther de­pre­ci­ate in the days to come. In the short run, the ru­pee can sta­bi­lize with the pos­si­ble in­jec­tion of ex­ter­nal fi­nances from Saudi, Chi­nese or In­ter­na­tional Mone­tary Fund ( IMF) sources. The real is­sue, how­ever, is to take con­crete eco­nomic and fi­nan­cial steps to en­sure the strength and cred­i­bil­ity of the ru­pee in the long run. Long term poli­cies for boost­ing in­dige­nous eco­nomic growth are ur­gently needed be­cause the scope of ar­ti­fi­cially in­ject­ing ex­ter­nal fi­nances, as a short term mea­sure, is lim­ited to sev­eral con­straints. Fur­ther­more, the in­jec­tion of hard cash from ex­ter­nal sources, whether bi­lat­eral or mul­ti­lat­eral, has its own short­com­ings in the long term.

Read­ily avail­able cash can make peo­ple and na­tions eco­nom­i­cally lethar­gic along­side in­cul­cat­ing a busi­ness spirit that re­sists change, in­no­va­tion and en­trepreneur­ship. The end re­sult would be that such coun­tries pre­fer for­eign goods be­cause of avail­abil­ity of cash that in­creases the vol­ume of im­ports. Fur­ther­more, lack of com­pet­i­tive­ness in lo­cal firms de­creases the level of ex­ports. In such a sce­nario, the cur­rent ac­count can re­main in deficit. The coun­tries rich in re­sources keep com­pen­sat­ing for this deficit from their in­dige­nous sources while cash strapped coun­tries, like Pak­istan, look for for­eign fi­nances.

It is per­ti­nent to men­tion that Pak­istan has a long his­tory of re­ceiv­ing aid from dif­fer­ent coun­tries. As a short term mea­sure, a rightly di­rected aid can help de­vel­op­ing coun­tries pro­mote eco­nomic growth by bridg­ing the sav­ings and for­eign ex­change gaps, al­le­vi­at­ing poverty, pro­mot­ing lib­er­al­iza­tion, in­te­grat­ing the coun­tries into the world econ­omy, strength­en­ing in­sti­tu­tions and en­sur­ing good gov­er­nance. How­ever, the eco­nomic im­pacts of for­eign aid, when re­ceived over a long pe­riod of time, cre­ate a cul­ture of lethargy in the pub­lic and pri­vate sec­tor in­sti­tu­tions that dis­cour­ages in­no­va­tion and out of box so­lu­tions piv­otal for sus­tain­able eco­nomic growth.

Pak­istan's reliance on for­eign aid over a long pe­riod of time has cre­ated anti- in­no­va­tion and anti- en­tre­pre­neur­ial cul­ture re­sult­ing in sharp de­cline in the coun­try's ' ease of do­ing busi­ness' rank­ing. Ex­ter­nal fi­nances can only pro­vide a tem­po­rary cush­ion to come out of this mone­tary tur­moil. How­ever, re­ly­ing on such op­tions for a long time fur­ther ex­ac­er­bates the cul­ture of eco­nomic lethargy. There has to be a strate­gic think­ing in our eco­nomic poli­cies fo­cus­ing on max­i­miz­ing prof­its through min­i­mum cap­i­tal. This kind of strate­gic eco­nomic think­ing was suc­cess­fully im­ple­mented by our neigh­bor­ing coun­try China.

As far as ex­ports are con­cerned, Pak­istan should en­gi­neer the Chi­nese busi­ness model in its fa­vor and fol­low it as a long term mea­sure. Our lo­cal busi­ness dy­nam­ics should in­te­grate with this model as part of such busi­ness en­gi­neer­ing. That means earn­ing ur­gently needed cap­i­tal through in­no­va­tion, im­i­ta­tion and en­trepreneur­ship. These steps can pave way for pre­par­ing Pak­istan for an eco­nomic ' take off stage' mainly aimed at boost­ing ex­ports ex­po­nen­tially. One can safely be­lieve that if these steps could be made part of a co­her­ent eco­nomic pol­icy, sup­ported by nec­es­sary po­lit­i­cal will, Pak­istani ru­pee can be trans­formed into a strong and rep­utable in­ter­na­tional cur­rency.

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