It will fall
Barely a year since IMF’s Extended Fund Facility (EFF) was wrapped up, the rupee is simply unable to maintain its artificially bloated position in the face of steadily declining imports and rapidly rising imports. The finance ministry will snap back, as usual, that the import bill owes to extraordinary requirements of CPEC. But then it will go silent when questioned about the more dramatic rise in import of consumer goods and luxury items. Remittances, too, have been giving way slowly over the last few years. Europe has been too shaky to provide much relief owing to its own political and financial demons. While the Middle East has also been steadily shrinking for the Pakistani working class, though owing to different reasons.
Yet no matter how inevitable a devaluation has now become, it is not really clear that it will help boost exports. One reason is our inability to incorporate any kind of value addition in our export basket. And another is criminally expensive, and infrequent, energy that prices us out of the competitive market even before we begin production. Then there’s the mountain of debt to think about. Debt servicing already constitutes 29 percent of export earnings. Devaluation will naturally spike the national debt. And with little or no export benefits, it is really the devil’s alternative.
Finance Minister Dar’s ‘rupee under hundred (to the dollar)’ obsession seems to have come full circle. Not only was it not possible to keep it under 100 – no matter how long he could park the Saudi billion (dollars) in our central bank vaults – but the trade deficit has swollen to a record $22 billion. In all likelihood, Dar will not be able to see his full term through as finance minister. And though he kept inflation low – owing more to the record Brent collapse than his policy preferences – he will be remembered as the minister who took complete control of the economy, and structurally damaged it to the core.