THE rupee continues its downward march, the impact of which will soon be evident on the common man. Rising prices are a natural concomitant of the weakness of a currency. But the effect on an already underperforming economy is even more debilitating.

Foreign capital has already been pulling out. A weak rupee has inflated our existing dollar-denominated foreign debt, making debt-servicing even costlier. A weak rupee will also raise the import bill, further widening an already unacceptable level of the current account deficit.

Remittances are set to suffer if, as is likely, expatriates decide to hold on to their dollars. Theoretically, our exports should benefit from a weak rupee, but we have seen no marked improvement in export performance with repeated devaluations in the past.

Yet, this free fall must be contained immediately to provide a breathing space for a more comprehensive long-run solution. Defending a weak rupee through intervention in the market can be ruled out for obvious reasons.

We are then left with no option but to resort to temporary administrative measures and even declare a financial emergency, if necessary.

The outflow of capital must be administered by the State Bank of Pakistan in a restrictive manner by rationalising import and other foreign payments.

Return on the rupee- denominated assets should be made more attractive to discourage speculative demand for dollars. Temporary stoppage of gold imports may also become necessary.

In addition, Pakistan must start looking at other payment options. A swap arrangement for petroleum products with Iran, Saudi Arabia and the Gulf states, and for general trade with China should now be explored in right earnest.

A weak currency is merely symptomatic of a general deterioration of the economy. The economy of Pakistan suffers from structural problems and for the long haul it is imperative that we revisit economic fundamentals.

Dr Muzaffar Ali Isani

Karachi

Published in Dawn, October 17th, 2018