Recent spikes in the dollar’s international exchange rate owe more to the greenback’s safe-haven strength than intrinsic improvements in the US economy. Largely, the dollar remains on a long-term quantitative easing induced downtrend. That the Pakistani rupee is hovering around its lowest levels against it in such times is symptomatic of deep structural weaknesses in the national economy.
Normally, economies suffering bouts of stagflation are inclined to engineer limited currency weakness, taking into account prevalent levels of inflation and expected export surpluses. Yet this is just where our economic system is seriously wrongfooted. Rupee weakness is feeding into already high inflation, while the export basket remains too miniscule to leverage the depreciation. With Asia beginning to slow, Europe paralysed by the sovereign debt crisis and the US bordering on double-dip, our traditional export markets, and subsequently earnings, are already compromised.
To make matters worse, most concerned quarters apparently continue to beat the feel-good drum from last year’s unexpectedly high earnings. That the trend varied from the norm because of the commodity’s price uptick in the international market, which later crashed and remains erratic, seems lost on decision-makers, betraying a worrying disregard for crucial developments.
Even if cotton does well in the medium term, a serious need to expand the export base remains. The manufacturing sector has been repeatedly disappointed due to official neglect. Private industry is unable to make important investments because of an un-accommodative lending regime and central bank printing presses continue to run overtime to finance the government’s non-productive expenditure.
The government must take steps to shift export focus from the traditional mix to incorporate manufacturing and value addition. Already, we lag behind much of the region in terms of trade competitiveness and productivity. As things stand, the posture of monetary and fiscal authorities alike is one of discouraging investment and entrepreneurship.
The unsatisfactory official position on exports, coupled with little evidence of forceful FBR reforms, means usual downward revision of the revenue target is around the corner. A quarter into the new fiscal, the government can no longer put off reform. If it shows evidence of ensuring increased tax earnings and meaningfully expanding the export basket, it will immediately sooth market sentiment already depressed far too long by abysmal growth, high prices and bleak job growth.
