The bloating current account, the relaxing monetary policy and the rising import bill all combine to pressure the rupee further against the dollar, stoking inflationary fears in an already stagnant economy where investment shows little signs of picking up. We’ve finally come to the point where the government’s excessive borrowing, channeled into non-productive avenues of running day-to-day business, is translating into structural weakness, embodied in this case in movement away from the rupee’s two-year 86 level against the greenback.
With the Rs90 per dollar expectation by year end, we have also come to the final point where the government can still leverage the weakening local currency for export earning advantage, an exercise that will require considerable change of posture in Islamabad. Immediately, we should see incentivisation of productive enterprise. The weakening interest rate regime must be complemented by reducing the government’s size in the money market, allowing the private sector to exploit relatively cheaper money and inducing foreign investment at the same time. Until and unless the government restores investor confidence, both local and exogenous, the weakening currency will only feed into weakening growth and rising unemployment.
Exports is but one essential feature in need of a very visible government push in the last half of the ongoing fiscal. The other, of course, is tax collection. So far, advances made by the 18th amendment have actually had a negative yield, at least in terms of revenue generation, the reason simply being a lackluster show of responsibility on part of relevant authorities. With deficits now mounting fast enough to hurt the economy structurally, and half the fiscal year gone with no signs of targets being met, those in charge must pull their socks up or risk being delivered a rude message at the polls.
