ISLAMABAD, Dec 13: State Bank Governor Dr Shamshad Akhtar said here on Wednesday that Pakistan would never devalue the rupee on the advice of the World Bank and the International Monitory Fund as a study had found that it would badly hurt the country’s exports and economy.
“Don’t mess around with your currency. We have conducted our own study and found that devaluation of currency would hurt our exports,” Dr Akhtar said while briefing the National Assembly’s standing committee on finance on the SBP annual report 2005-06 on the national economy here at the Parliament House.
“Look, either you trust the governor of your State Bank or Mr Wall (country representative of the WB),” Dr Akhtar told the committee’s members Kashmala Tariq and Ghulam Murtaza Satti.
The committee members had repeatedly hinted towards John Wall’s statements in which he had suggested devaluation and said that Pakistan maintained an artificial exchange rate.
She said that the exchange rate had broad-based implications for resource allocation, trade openness, balance of payments and growth of the economy. She also rejected as false a common impression that the devaluation caused an increase in exports of a country. Export growth was rather a structural phenomenon and was related to the infrastructure of a country, she clarified.
The State Bank governor stressed that the rupee should be left to the market fundamentals and that there was already a “natural depreciation” in it. She said that when Pakistan moved towards the floating exchange rate regime in 2000, one US dollar was equal to Rs64. Later, the rupee appreciated and one dollar was equal to Rs57. Now, again the rupee has been depreciated by the market fundamentals and stood at Rs61.15 per dollar, which was okay as it was a natural process.
She said that there were evidences that Pakistan’s exports grew by 74 per cent during the time when there was a modest depreciation caused by the market fundamentals. Any other move would only result into inflationary pressures on the economy as too much money would chase too few goods.
In response to a question, Dr Akhtar said that there was a difference in the methodology of IMF/WB and the SBP and that they were the central banks which dealt with the monetary policy of countries globally and not vice versa.
She said that Pakistan would take any decision regarding devaluation of currency keeping in view the weight of its trading partners.
“Inappropriate exchange rate adjustments can actually hurt exporters, if these raise costs (of doing business and manufacturing goods) and if exporters are unable to increase prices due to increased competition,” Dr Akhtar observed.
She said that at present the country’s overall reserves were over 13 billion dollars, compared to 3 billion dollars in 2003, which meant that things were still well under the control of the central bank. Inflows to the economy only through remittances had increased from $1.6 billion in 2003 to $4.6 billion in 2006.
