Rupee rises

The finance minister has beaten the speculators at their own game

Depreciation in the value of the currency of a country against dollar or any other international currency with which they are linked or in which they pay for their imports and meet international obligations, is always a cause of worry for the governments due to its negative impact on broad spectrum of the population. In the same way, the appreciation in the value of a currency symbolises strength of an economy and generates positive economic activity in the country benefiting the masses due to its trickle down effect. Although fixing and maintaining the value of a currency is not the part of the economic strategies of the governments and it is mostly determined by the market forces, yet no government could afford to neglect the phenomenon. The slide in the value of a currency also becomes a political issue and the detractors of the government invariably use it to cavil at the inadequacies of the economic policies of the government.

The Pakistani rupee has also been losing its value against dollar for quite sometime and reached the parity value of Rs111 against one dollar. The opponents of the government found it convenient to grill the government for its inability to stem the rot and one of the politicians even went to the extent of saying that the government had lost the initiative forever and that he would quit politics if the dollar was pulled back to its old value of Rs98 against one dollar, as promised and repeatedly asserted by the finance minister. The fact is that the rupee has regained its parity rate of 98 to one dollar. Well the politicians are politicians and no amount of embarrassment can force them to commit political suicide. However the finance minister deserves a pat on his back for pulling this off.

It came about not through a miracle (because miracles do not happen) but through some imaginative policy initiatives taken by the finance minister. The appreciation of the rupee value has considerably enhanced the international purchasing power of Pakistani citizens. Calculated in terms of rupees it would also appreciably lower the foreign debt. The prices of imported oil and food items including tea would get on the downward curve, thus benefiting the masses at large.

It is a verifiable truth that the rupee declined in value against dollar due to the manipulative machinations of the speculators and those having stakes in the fluctuation of the value of rupee — preferably downward — to create situations where their stacked dollars could buy more rupees. The major players in this regard are the exporters of textiles who usually keep the dollar earned outside the country, estimated in the vicinity of US$ 4-5 billion, to trigger the downfall of the rupee and reaping the benefits. What the finance minister did was that he created a situation that forced these speculators and manipulators to repatriate their foreign reserves to Pakistan for the fear of losses that could accrue to them due to the appreciation in the value of rupee against dollar. First of all, the government increased supply of dollar notes in the market. It also made sure that the export earnings were immediately brought back. Import of gold was banned to avert its smuggling to neighbouring countries. A stringent regime of administrative and regulatory measures was put in place to discourage the speculators and manipulators of the exchange rate market. The finance minister through these imaginative measures beat the speculators at their own game: well done. Reportedly US$ 1.5 billion received from Saudi Arabia through Pakistan Development Fund have also considerably helped the government in controlling the downward drift of the rupee.

The situation has also been helped by some positive signals emanating from the measures initiated by the government to rebuild the economy. The large-scale industrial sector maintained a growth rate of 5.2% during the first six month as compared to 2.2% for the same period last year. Sales tax collections were went up by 30%. Credit to private sector during the first six months increased to Rs231 billion as compared to Rs53 billion during the corresponding period last year. Machinery imports registered 26% increase. Stock Exchange index is also on the up ward curve. As against an IMF target of 3.5% for the first six months, budget deficit stood at 2.6%. Exports recorded an increase of 3.2 per cent in the fist six months and remittances increased by 9.5%.

All these indicators also contributed to the restoration of confidence that has remained shaky for some time now. Nevertheless there are still some detractors of the government who believe that the reversal of the trend is only a temporary phenomenon and it would be difficult for the government to keep it that way over a long period of time. Probably that again belies the ground realities. The exchange rate can be steadied with greater inflow of dollars through FDI, increased exports, enhancement in remittances and other sources, for which the prospects look quite encouraging.

The confidence expressed by IMF in the economic agenda of the government has also augmented confidence of the foreign investors in the resilience of the economy. Consequently billions of dollars are expected to flow in through foreign investments. China has evinced interest in investing US$ 22 billion in the power and infrastructure projects in Pakistan. It has also agreed to upgrade the existing railway track between Havelian and Karachi, setting up a state of the art dry port at Havelian and laying of a new railway track between Karachi and Gwadar.

Pakistan expects an increased inflow of dollars from other multiple sources in the future. The possible avenues include IMF tranche of US$ 550 million, sale of Eurobonds of the value of US$ 500million, US$ 1.2 billion from the proceeds of the auction of 3G, US$ 350 million through Coalition Support Fund and the expected US$ 800 million outstanding payment from Etislat. The GSP Plus is also expected to boost Pakistani exports to EU countries by US$1-2 billion that would cause enhancement in the employment opportunities within the country besides promoting the establishment of down the stream industries, with enormous ‘multiplier effect’. The government being alive to the situation and having defeated the speculators is now in a better position to keep the manipulators of the exchange market at bay. With the economy also poised to take a plunge into the take-off stage, the chances of the speculators and manipulators of the exchange market to stage a comeback look very bleak.