- And that too in the midst of the election campaign
With a steep fall in oil prices in 2014, the US dollar started strengthening. This was the time when the PML-N government should have devalued the rupee to keep the country’ exports competitive. Making a purely economic issue a matter of prestige, Ishaq Dar pooh-poohed those who advised him to take the action. Dar was thus responsible for a yearly decline in Pakistan’s exports to the extent of 20pc in dollar terms. By taking note of the writing on the wall and initiating devaluation step by step, Dar could have ensured that there was no sudden rise in inflation. When the State Bank withdrew its support on Friday, Pakistan rupee plunged to as low as Rs110 per dollar, then seemed to stabilise to a little over Rs108 but plunged again on Wednesday to touch the intra-day high of Rs111.25 in the interbank market closing at Rs110.38. Translated into inflation his will give a jolt to the common man.
While the exports declined as a result of Dar’s stubbornness, an overvalued rupee led to the rise in cheaper imports. This created a current account deficit which ballooned in the first quarter of 2017-18 to $3.55 billion compared to $1.63b a year ago. The ever-increasing foreign payments are being made by acquiring new loans. Pakistan’s capacity to repay external debt and liabilities has weakened significantly in the past four years and its foreign debt obligations are now equal to 162pc of annual foreign exchange earnings – the highest ratio in the past one decade.
Dar boasted in October that the government will not go back to the IMF programme. With prospects of improvement in export earnings or remittances being grim many predict Pakistan will go begging again by the time the country holds the election in the middle of 2018, giving the opposition another point to chastise the government. As the elections approach the common voter would also be feeling the heat of inflation. The severity of some these factors could be limited by appointing a competent and empowered finance minister at the earliest.