Originally published on July 24, 2022

KARACHI: “My first salary was Rs12,000 in 1996 when one dollar was equal to Rs34. The first salary in the same brokerage industry today is about Rs50,000, even though the dollar rate is over Rs228,” said Asif Qureshi, executive chairman of stock brokerage Optimus Capital Management.

It means the first salary of a fresh finance graduate in the brokerage industry has gone down from over $350 a month to less than $220 in the intervening period.

The takeaway is that the dollar wages in Pakistan have gone down significantly, thanks to the consistent devaluation of the rupee against the dollar over the years. People employed in the services sector are more exposed to the fluctuation in the dollar rate than their counterparts in the manufacturing sector, says Mr Qureshi.

“I can’t charge a higher brokerage commission in the name of depreciation. But a large chemical maker will pass on the impact of the depreciation and keep his dollar-based profit margin intact,” he says.

Experts say industry, with its ability to pass on rising costs to consumers, is more insulated against exchange rate fluctuations than services sector

A rising dollar rate is a key contributor to inflation. From petrol and medicines to pulses and books, the economy depends heavily on unavoidable imports. The import bill outstrips export earnings by a wide margin every year and results in a shortage of dollars in the local market. The exchange rate goes further north, fuelling import-led inflation.

Prices of commonly used consumer items increased 21.3 per cent in June from a year ago mainly because of costly fuel and food items.

So are there any home-brew hacks that ordinary folk can use to minimise the impact of the sharp exchange rate movement?

The most obvious resort is work-from-home, car-pooling and the use of energy-efficient equipment at home to lessen the impact of exchange rate–induced inflation, says Mr Qureshi.

He advised people against keeping their savings in dollars or even gold as a hedge against inflation. There’ve been many years in which inflation outpaced the increase in dollar and gold rates. For example, the dollar rate barely moved during Gen Musharraf’s years in the 2000s for a variety of reasons. In the same vein, stock investors have made no gains in the last six years or so.

The stock market needs a major influx of liquidity as shares are undervalued, he said. Fixed income funds are offering about 15pc returns, which can be a good hedge against inflation, he added.

Speaking to Dawn, Federal Board of Revenue’s former chairman Syed Shabbar Zaidi said there’s not much that people can do to escape the fallout of a dollar rate increase other than slashing their petrol and electricity consumption.

“But I must say our overall approach is flawed. We’re too focused on getting consumption reduced at the individual’s level. There should be a single-minded focus on reducing fuel and electricity consumption at the national level instead. Early closure of commercial centres is a must,” he said.

But what’s the way out in the long run?

Putting on his advisory hat, Mr Zaidi said the overall economy will be better off if big conglomerates focus on generating an exportable surplus while expanding into segments that don’t depend on imported raw material. That’ll slow down the pace of dollar outflows and arrest the runaway depreciation that’s wreaking havoc on the lives of ordinary people.

“We should also discourage foreign investment in banking and water-selling businesses,” he said while referring to foreign direct investment (FDI), which leads to dollar-based repatriation of profits and dividends every year.

Many economists believe that FDI — even though it creates no debt obligation — has been mostly harmful for Pakistan. FDI flows have traditionally been concentrated in consumption-based sectors like telecommunication, banking, packaged food and milk, soft drinks and toiletries.

In other words, one-time dollar inflows generate zero foreign exchange for the country. Multinational companies convert their rupee income into dollars in the local market and send the precious foreign exchange to their foreign sponsors in the form of dividends every year.

“Why do we need a multinational to sell us water? Why do we need foreigners to invest in our banks? Don’t we already know banking?” said Mr Zaidi.

Published in Dawn, July 24th, 2022