Why PTI needs to steady rupee? | The Express Tribune


Democracy in Pakistan is still in early stages. While the previous two governments – Pakistan Peoples Party’s (2008-2013) and Pakistan Muslim League-Nawaz’s (2013-2018) – saw successful completion of five years, Pakistan Tehreek-e-Insaf’s (PTI) term has arguably been the most scrutinised one.

The story is simple – building high expectations and below-par delivery. Most pressing among the issues – and a challenge for cabinet members – is the ever-rising inflation.

Part of that is under government’s control while the most, fairly speaking, is not. It’s not over until the fat lady sings.

About 37% in three years. No! This is not a guaranteed profit scheme, but it is the rate of Pakistani rupee depreciation from Rs128 to around Rs175 against the US dollar.

Even with a nominal 10% increase in salaries every year, the urban salaried class is definitely not better off. It is true that the PTI inherited a high current account deficit and some moderation was naturally expected, but the perpetual fall is seriously hurting the purchasing power of masses and consequently, the PTI’s vote bank.

Government still has nearly two years more in its innings. But the “engineering” – or electable changing their loyalties – would start after a year.

Going back to the masses for votes, you have got to effectively market your achievements, if any. A steady and strong rupee surely has to be in the menu at the time of electioneering and public rallies.

In 10 years, Vietnam’s, Bangladesh’s, India’s and the Philippines’ currencies have fallen by 8%, 13%, 50% and 13% respectively against the US dollar.

Meanwhile, Pakistan’s rupee has depreciated 100% from Rs86 to Rs172 against the US dollar. Let me save you from a scary scenario, had remittances not grown in the same period.

Conclusively, Pakistan’s exports are not highly elastic to currency depreciation. Textbook theories sometimes can be self-fulfilling prophecies, as depreciation leads to inflation, that in turn leads to more pressure on currencies. Thus, the vicious cycle.

The problem, thus, is meagre export growth. Going for re-election in 2023’s winters with the rupee near Rs190 against the US dollar is a vote-losing recipe. If we can effectuate import substitution in petrochemical, refinery, steel and electronics sectors while adding value to meat, technology, dairy, textile and food sectors, we should have comfortable 2023-2028 as the results of policies take years.

There is a debate on the upcoming State Bank of Pakistan (SBP) autonomy bill that inculcates fear that market-driven exchange rate may continue to slip in an expansionary monetary (interest rate) and fiscal (spending) policy.

Prospective voters may not be too irked with interest rates at 10% (if that’s what needed to balance the books) than seeing the rupee being speculated towards a double century of Rs200.

Yes, a higher interest rate slows economic growth but going slow is better than the currency spiralling downwards.

Mind you, several big-ticket power projects (including CPEC ones) are dollar-denominated and thus, the capacity payments might explode requiring further hikes in tariffs. It’s better to live within the means for a few years and prepare for growth later.

Voters going to the polling stations in 2023 would want to see their lives improved in the last two years. Pakistanis do have a short-term memory that they forget what happened a few years earlier.

Programmes such as Ehsaas, Mera Pakistan Mera Ghar, jobs from Temporary Economic Refinance Facility (TERF) and export growth need to continue at an accelerated pace now.

Having a gross domestic product (GDP) growth of +5% in 2022 and 2023 can swing the pendulum in favour of the masses provided the pace of inflation is lesser than the rise in incomes, asset values (Pakistan Stock Exchange) and affordable food staple.

The expectations are not unrealistic and are doable. It’s vital not to throw the US dollar – borrowed or export earned – for the consumption of luxury items only.

The real challenge from here is bringing efficiencies to the system. Privatisation of loss-making enterprises, widening the tax base, increasing agri-yields, controlling tax evasion, encouraging private investors for import-substituting investments, developing in-house energy complexes and materially supporting IT sector exports should be on the dashboard.

Policymakers should aim higher and aim for 2031 instead of re-elections. But for the current ones to have a relatively better chance, controlling the import-led inflation is a must.

PTI can still live up to the expectations. Pakistan is known for a better run rate in the last 10 overs of a 50-over cricket match. No need for the PTI to throw in the towel. Export the towels.

The writer is an investment

specialist with keen interest in political economy

Published in The Express Tribune, November 15th, 2021.

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