FINANCE Minister Ishaq Dar has shouted the dollar back down again, for the second time since his term began. But he cannot do the same where the current account deficit is concerned. The sharp depreciation of the rupee on Wednesday was described by the State Bank as necessitated by a worsening of the external account, something that is widely known in financial circles. The State Bank even went on to add that the depreciated value of the rupee, at 108.25 to the dollar, was “broadly in line with the economic fundamentals”. But the finance minister described the move as “artificial” and then during his news conference on Thursday, added that it was the result of “miscommunication between a few individuals”. Not only that, he went so far as to claim that one deputy governor at the State Bank appeared to have acted on his own, and promised a probe into the affair, once a permanent governor was appointed.

This take on the whole affair raises some important questions. First, how can it be that the State Bank owned the move in a press release on Wednesday if it was in fact engineered by one individual and did not represent the institutional prerogative of the central bank? Even if we believe one individual is responsible for the withdrawal of all supports provided to the rupee in the interbank market, how can he or she arrange for the drafting of a press release and its upload onto the State Bank website without taking others on board? It appears that the finance minister has allowed his temper to overrule his judgement.Now that the currency has been restored to the level he favours, he should move to breathe more confidence into the markets rather than breathing fire at them.

Lost in the whole drama is the elementary truth that the country’s external accounts have widened to unsustainable levels, and depreciation in the rupee is inevitable. The longer that decision is delayed, the greater the eventual shock is going to be. On the same day that the whole drama played out, a little noticed revision in the data reported for the current account showed that the deficit is in fact $1.71bn higher than what it has been reported all year. This means the situation is even more urgent than originally thought. But if we are to believe that the State Bank has suddenly woken up to its responsibilities as the legally empowered, independent curator of the country’s foreign exchange reserves and exchange rate, then we must know what it makes of the sudden reversal of the exchange rate witnessed on Thursday. The clear fact here is that after the finance minister’s tirade, all semblance of the independence of the State Bank has almost completely vanished. The sad loser in this fiasco is the economy of Pakistan.

Published in Dawn, July 7th, 2017