ISLAMABAD: While the rupee is in free fall, economists and government officials in the capital are debating the causes instead of taking steps to prevent further depreciation of the rupee.

Obviously, the market is in panic and looking for some assurance from Islamabad. But unfortunately, Finance Minister Ishaq Dar is in New York with Prime Minister Nawaz Sharif for reasons better known to him.

Then it is also a fact that the slide in rupee is good for some to make windfall profits. That the same has serious implications for the economy, the government does not seem to be shaking up to come out of its slumber and address the structural problems believed to be the main cause of the free fall in rupee.

A top banker from Karachi who wished not to be quoted identified two decisions announced in the budget as prime reasons for ‘nervousness’ in the market.

The banker said it was an unwise decision of the government to empower tax officials to access accounts of the depositors, which he believed would lead to harassment of account holders.

At the same time, the filing of return forms for declaring cash in bank accounts for the purpose of 0.5 per cent income support levy added to the problem as well. Last date for filing of the return forms is October 31.

As a result, the nervous people are withdrawing cash from banks which is leading to dollarisation in the country. It also caused capital flight from the country triggering further pressure on the currency.

Beside this, the government is also reluctant to regulate import of gold, which is mostly smuggled to India. Last month, gold worth $500 million was imported, but Islamabad is unwilling to levy duty on it to save precious foreign exchange.

Tax officials did not agree with the apprehensions of the bankers that tax proposals cause bank run.

Federal Board of Revenue Chairman Tariq Bajwa said the depreciation was mainly because of speculations in the market.

Mr Bajwa quoted the State Bank governor to have stated in mid-July that no major cash withdrawal had been observed because of these measures. The chairman may be right but in September, things have really changed and people are converting their rupees into dollar to keep it in lockers. The only step the government has taken so far is that it has reached an agreement with seven domestic and international banks to borrow $625 to boost foreign exchange reserves. The reserves currently stand at $10.3 billion.

Instead of borrowing, the Karachi-based banker suggested to the government for securitisation of remittances which can easily raise around $5 billion dollar in short time. This will give enough confidence to the market in stopping the free fall of rupee.

The securitisation tool is not something new and the formula already exists but it requires government will and commitment to consider it, he added.

Aside from this, depreciation leads to an increase in the price of imported goods; it also increases the debt servicing suggesting no impact on exports if there was contraction in global demands.

Renowned economist and economic advisor of the Balochistan government Dr. Kaiser Bengali said that structural problems in the economy are the main reason for slide in the rupee.

Whenever there is a crisis, government look for temporary solution and involved in blame game, he said. Since 2001, the import dependency has increased especially because of furnace oil and diesel imports.

Mr Bengali said that there was not sufficient dollar in the country because imports have doubled the value of exports. The gap, he said has created a space for speculators.

The prescription of the present government for improving the health of economy especially energy was also through imports of coal etc. It seems is it dollar grows on trees as government does not look for domestic solution like to use domestic coal for power generation instead for importing it, he questioned government approach.

There are other reasons for the pressure on rupee which includes worsening current account deficit, insufficient foreign direct investment inflows, rising import bill of oil, contraction of economy etc.