Dollar-denomination

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  • New instruments may be an amen of devaluation to come

 

The State Bank Governor, Dr Reza Baqir, himself is said to be behind the scheme for a new instrument of the National Savings Directorate, whereby the payment of the purchase price, the encashment, and the payment of profit, would be in rupees, but the denomination of the instrument and its profit would be in dollars. The amount actually paid would be determined by the dollar-rupee exchange rate prevailing that day. While this would presumably allow a wide range of speculative activities, some of which would at least appear to be scams even if they evade outright criminality, it would preserve the value of deposits. The scheme, though not yet approved, seems aimed at overseas Pakistanis. Combined with the high interest rates raised by the SBP’s Monetary Policy Committee in July to attract ‘hot’ money, it seems that the Governor seems to agree with the IMF estimate of further devaluations of the rupee, of another Rs78, or 64 per cent, in the next five years. Dr Baqir should know, for he was the IMF country head in Egypt before he took his present assignment– supposedly on the IMF’s insistence.

This scheme presumably takes into account the improvement of forex reserves seen because of the release of an ADB tranche. However, the fall of the rupee, noticeable though not precipitate after the Eid break, shows that all the harsh measures taken to stabilise the economy do not seem to have worked. The rupee is in free fall, and seems destined to remain so, now that the man who should stop its side is making proposals that seem to assume further devaluations.

Meanwhile, what is the hedge of the common man against the inflation that this further depreciation will bring? Such a person already cannot make both ends meet. It should not be forgotten that there are three essentials which must be imported: fuel, food (in the shape of edible oil), and lifesaving drugs. If these become too pricey for people, they will have no alternative but starvation and allowing the diseased to suffer and indeed to die. The likes of Governor Baqir may have cushy IFI slots to go back to, but the PTI government he purports to serve, does not. Instead, they will have to go to the electorate for a renewal of their mandate.