THE performance of the rupee on the value chart was closely monitored all year long in nervousness as it kept sliding on a slippery slope. The slide has been in place for some time, but in 2012 it depreciated by a good 10 per cent. It was trading at 89.3 to a dollar in the open market at the start of the year. In mid December, a dollar was worth Rs99.7.

The government seemed content with its economic performance. The composure of the Finance Minister, in particular, was exemplary, counting successes in the wake of deepening crisis. His associates dismissed the anxiety over the erosion of the value of rupee as “misplaced”.

“It means nothing. The interplay of demand and supply determines the price in a free-market environment. Over the year, it moved both ways. I do not see a surprise here. Do not try to read too much in the gradual fall,” commented a key member of the economic dream team of the PPP-led coalition.

Besides the sagging economy growing at three per cent and falling SBP reserves ($8.3 billion), there were host of other factors that mounted pressure on the local currency and forced it to move down. The first and the foremost was said to be sudden hike in dollar demand fuelled also by political uncertainty as the elections drew closer in a troubled law and order environment. “There is a trend of dollarisation in the country as the foreign currency accounts in commercial banks have swelled by about 15 per cent. A time deposit of a year gives return of around eight per cent whereas annual return against dollar is 10 per cent,” a banker noted.

The monetary easing was cited as the next important factor. “It is basic economics. The money growth rate of 18 per cent over the year ending aided the trend of rupee depreciation,” said an analyst.

The measures that could have generated foreign exchange for the government like privatisation of public-sector enterprises and the sale of 3G licenses could not get materialised for obvious reasons. Besides, the charm offensive in the realm of economic diplomacy backfired as warmth in relationship with rich Muslim states in the Middle East could not be translated into material favours.

The State Bank, as such, signalled concern as its capacity to lend support to the weakening currency through dollar injection was compromised by the falling foreign exchange reserves. It tried to suppress dollar hording by engaging currency brokers to stabilise the rupee after announcing further easing of monetary policy in December.

In the absence of a sense of urgency regarding rupee value in the government hierarchy, inclined more towards quick fixes to slap the economy into good shape in the short term to get re-elected in the upcoming general elections, the future of currency does not appear to be bright.

The reimbursement of $700 million by US and permission by the IMF to push ahead by a few months the repayment deadline can help to ease the situation, but even before receiving a formal request, the IMF put to rest all speculations by clearly stating its position against the rescheduling option.

Disappointed with the government’s acumen and economic management, the experts fear further devaluation, crossing the psychological barrier of Rs100 to a dollar anytime soon.

As the rupee sinks, the worth of assets in public and private possession depletes, import costs soar, much-needed imported skills and technologies become dearer, and in public psyche the falling exchange rate reinforces a defeatist attitude.

“When the state was declared a pariah in 1998 after nuclear tests and the world came down hard on us, calling Pakistan a ‘one tranche’ economy, the pundits had predicted three-fold erosion of the rupee from about Rs50 to Rs150 to a dollar. The rupee, however, resisted the pressure and at no point did it touch Rs80 in the open market before actually fighting back to regain lost ground to some measure, proving the prophets of doom wrong. How bad the current crop of leaders must have messed up the economy to drive the currency to record low,” commented a currency dealer, echoing the sentiments of many.