It's a boon for some and a curse for others. The sudden devaluation of rupee has gone largely unnoticed in Pakistan. Yet the devaluation will impact most Pakistanis.

Those receiving remittances from abroad will see some extra cash in their pockets. At the same time, the price of imported goods (petrol, tea, cooking oil, etc.) will rise, tightening household budgets all around.

The 24/7 coverage of the political circus combined with a judicial inquiry has left little room in print and electronic media for matters that matter. An exception was Khurram Hussain's exposé in the Dawn about the larger economic impact of currency devaluation.

Currency exchange rates are explained in most beginner texts in macroeconomics. Pakistan's import bill will increase whereas exports will be cheaper and hence more competitive globally, leading to growth in the export sector.

The increase in the price of imported goods will support inflationary pressures. The resulting uncertainty could lead to lower domestic consumption that might not be offset by the growth in the export-oriented sectors.

If the rupee continues to slide, the government might have to revise interest rates upwards to arrest the flight of capital. The same instrument will be deployed to arrest higher than expected inflation.

Pakistani rupee, like all other currencies, has gained and lost value in the past. It will do so in the future as well.

What should be of interest to our readers is if the timing and determinants of the current devaluation are an outcome of larger macroeconomic conditions or if there are other dubious forces trying to manipulate the markets, as finance minister, Ishaq Dar, alleges.

Is Mr. Dar to be believed or the central bank? Is every development, or the lack of it, in Pakistan a conspiracy against the ruling class, or is there a greater economic system whose fundamentals impact Pakistan as much as they impact other nations?

Currency manipulation, or at least the accusations about it, is not uncommon. Export-oriented economies are often accused by others of manipulating their currency to lower the price of their exports.

For instance, the US President, Donald Trump, in the past called the Chinese “grand champions of currency manipulation.” During the presidential campaign, Mr. Trump often accused the Chinese of lowering their currency to maintain the competitiveness of Chinese exports.

Mr. Trump did have a change of heart in April this year when he declared that China was “not a currency manipulator.” He found another reason for the strong US dollar. “I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me,” declared the American president.

Mr. Dar, it appears, takes inspiration from Mr. Trump and takes credit where it's due and also where it’s not. In a statement after rupee devaluation, Mr. Dar declared that “[d]espite the eight to nine-billion-dollar current account deficit, if the reserves are still, by the grace of God, sitting at $21bn, it is because our team has performed that they are there.”

The operative comment in Mr. Dar’s statement is about the eight to nine-billion-dollar current account deficit, which exposes the sustained decline in Pakistani exports that now lag imports by billions of dollars, an untenable financial scenario.

For years, the Pakistani government has deliberately propped up the currency. Bloomberg reported recently that commercial banks were told not to trade rupee at levels unacceptable to the State Bank. In fact, Pakistan's rupee remained the only currency to hold its ground against the US Dollar when almost all other regional currencies slid.

There is, however, an obvious downside to artificially propping up the currency. While it may provide justification for some false sense of pride or financial stability for the naive, it erodes export competitiveness.

Pakistan's $9 billion current account deficit (a measure of weak exports against imports) will continue to widen if rupee were not devalued.

The concerns about an overvalued exchange rate are by no means new revelations. The IMF had warned government last year that the rupee was overvalued by as much as 20%.

In a July 2016 report, Bloomberg reported IMF’s concerns about the overvalued exchange rate and its impact on the weakening of Pakistani exports especially when other regional economies had adjusted their currencies to compete in the international market place facing a slowdown in consumption.

Currencies rise, and they fall. That’s not a concern.

What matters is when political brinkmanship takes precedence over national interest. When those elected to mind the nation’s finances view everything from a bipartisan political lens, problems arise.

When the rupee devalued last week, the finance minister, Ishaq Dar, accused “individuals, lenders, and entities” of “exploiting the current political situation.”

However, the State Bank of Pakistan saw the devaluation to be “broadly aligned with economic fundamentals” and that devaluation is likely to support growth in exports in addition to addressing the “emerging imbalance in the external account.”

Is Mr. Dar to be believed or the central bank? Is every development, or the lack of it, in Pakistan a conspiracy against the ruling class, or is there a greater economic system whose fundamentals impact Pakistan as much as they impact other nations?

It is an opportune time for the government to do the right thing. The recent appointment of Tariq Bajwa as the new governor of State Bank must be followed with a commitment to grant operational autonomy to the central bank so that it may conduct its affairs (including managing the exchange rate) independently and in the best interest of the nation.

Are you an economist and have a take on whether a weak rupee is in Pakistan's national interest? Write to us at



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