IN its fresh bail-out package, the IMF touted a floating exchange-rate as a benign conditionality. However, its own 1996-Economic-issues series booklet ‘Moving to a Flexible Exchange Rate: How, When, and How Fast?’ cautions against over-optimism.

The booklet — by Rupa Duttagupta, Gilda Fernandez, and Cem Karacadag — concludes with the advice: “Both fixed and floating exchange rates have distinct and different advantages. No single exchange rate regime is appropriate for all countries in all circumstances. Countries will have to weigh the costs and benefits of floating in light of both their economic and their institutional readiness.”

Lest a floating exchange becomes a harbinger of bankruptcy, we should closely examine our ‘readiness’.

When the State Bank of Pakistan devalued the rupee in July 2017, then finance minister Ishaq Dar claimed the State Bank of Pakistan acted without his volition. He ‘promised an inquiry within ten days’. That devaluation inflated our debt burden by Rs 2,300 crore.

Again, under this government the rupee was initially devalued by 3.8 per cent, or Rs5.06, to an all-time low at Rs139.05 to dollar, increasing the debt burden by Rs 3500 crore).

The government placed the blame on State Bank for devaluing the rupee without informing it. The hidden hand or motivation behind devaluation was never ferreted out.

A slow growth rate, poor productive capacity and dominant services sector foretell that our rupee will further weaken vis-a-vis dollar. Even without further devaluation, our external public debt was $74 billion as of end-February 2019. The country’s economic growth rate has slowed to 3.3 per cent, the lowest in nine years.

The slow pace of economic growth, coupled with currency devaluation and the reduced size of the economy to around $280 billion from $313 billion at the end of the PML-N government’s term show very hard times lay ahead for the nation.

M. A. J.

Rawalpindi

Published in Dawn, May 26th, 2019