THE stability of a country’s currency depends on the strength of its economy. The currency is reflective of the confidence, or lack of it, of investors in the future of an economy. Given Pakistan’s economic woes stemming from resistance to carrying out tough but necessary financial and governance reforms, it is but natural that the exchange rate should remain under constant pressure. That the rupee has lost 58 per cent of its value — depreciating from 62 to 98 to a dollar — in the last four and a half years, is thus hardly surprising. The foreign exchange reserves with the central bank have fallen sharply below the import cover of less than three months. The external sector is under pressure and the balance of payments position continues to deteriorate on the rising current account gap and heavy debt payments. Even remittances of $48bn by overseas Pakistanis during this period have not propped up the rupee or caused the external sector to look up. Imagine what would have happened to the exchange rate had remittances not increased at the pace they have in all these years. We had a glimpse of this horror film in the latter half of 2008 just before the IMF bailed out the collapsing economy with its $11.3bn loan.

Volatility in exchange rate is not good for the economy. It triggers inflation at the expense of poorer segments of the population, eats into the modest savings of the middle class, scares away domestic and foreign investors as their capital costs rise and profits shrink, encourages ‘dollarisation’ of the economy as people lose faith in their own currency, and leads to the flight of capital. As a consequence, Pakistan has already become a net exporter of capital. Fears abound that we may see a sharp fall in remittances — which have so far kept the country going in the face of drying up foreign capital inflows — unless the economy is fixed. But are we ready to take tough decisions to reverse the process of economic degeneration? The country’s ruling elite hasn’t evinced any such inclination. At least, not so far.

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Comments (6)

January 15, 2013 8:02 am
It is quite elementary and rudimentary. Unstable country and its unstable economics policies lead to unstable currency. What is new?
January 15, 2013 9:26 am
wisemen said that if you want to know the leadership of your government then chek its currency flactuations, if it goes up than you have really a good leader, if viceversa than very pathetic for that nation.
January 15, 2013 5:27 pm
a failed state that is incapable of fulfill the basic needs of it's citizens ; hope of a better future and security. It's sad.
Sue Sturgess
January 16, 2013 12:24 pm
No "state" is a "failed state". There is an old saying that we all get the government that we deserve. Sadly, history suggests that this is true. All that is required for evil / corruption to prosper ... is for good people to do nothing. Corruption has existed in every society and will continue to do so. However, it can be limited and somewhat contained, if enough good people do the right thing. In Pakistan ... you have a vote ... use it wisely.
Sue Sturgess
January 16, 2013 12:18 pm
Wise men existed long before international currencies, and wise men, (and women), also know how easily international currencies are manipulated by those in power.
ali ahmed
January 16, 2013 3:31 am
upto first part of 2008 economy was going well instead of improving the weakness of the system...a old and corrupt system was brought by so called lawyer movement supported by media...where both the PM involved in corruption...and now another corrupt man waiting for his turn who is involved in 418 billion dollar corruption...common people want their basic problem to be solved
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