Not much is pleasant on the economic front. The rupee touching 90 against the dollar on Monday reflects an out of control current account. And since there is little likelihood of the government’s fiscal or trade position improving anytime soon, we should begin preparing for a sustained decline in the local currency, even touching 100 per dollar in the third quarter of the ongoing fiscal.
The timing of the widening rupee-dollar exchange could not have been worse, underscoring the need for sound economic footing to prepare for unforeseen exogenous shocks. The sovereign debt dilemma in Europe has pushed international investors to the safe haven of the US dollar. Otherwise, the dollar has largely hovered at its lowest levels of all time. That we are at our worst against the greenback in the present environment speaks volumes of incompetence in Islamabad.
It bears noting that across our eastern border, New Delhi is struggling with similar problems with regard to a weakening local currency. Yet it would be quite an achievement to spot a government as heavily present in money market borrowing as ours. Its inability to function without daily dose of debt lands it in a league of its own, compromising any chance of stimulating growth because of crowding out of crucial private sector investment. With funds deliberately channeled towards non productive expenditure, it is little surprise that monetary policy toggling has had little impact on growth and employment. Unfortunately, our miniscule export mix has also ruled out leveraging currency weakening for enhanced trade earning.
Expect further distressing news to follow the downward revision of the growth target. Expect also that deficits will bloat out of proportion. And expect continued rupee weakness. Trying to convince the public (as usual) that the downside owes to factors beyond its control will be particularly difficult as people go to the polls not long after the next budget presentation. With half the fiscal remaining, there is still time for the government to at least posture in the right direction.
govt lavish spending, taking out corruption money by converting into dollars, with no environment for business growing particularly in the abs ens of availability of power and gas will keep weakening rupee in the coming days.
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