With its fourth depreciation of the rupee in a year, the latest taking place on Monday, June 11, Pakistan’s economy is in dire stress as the country hurtles towards an election that none appears to feel optimistic about in terms of economic recovery.
This comes as its caretaker government feels helpless having no mandate to seek a bailout package from the International Monetary Fund (IMF).
Caretaker Finance Minister Dr Shamshad Akhtar said the interim government had no mandate to sign any new agreement or start negotiations with the International Monetary Fund (IMF) for a bailout package, stressing that any decision to that effect should be taken by the upcoming elected government.
The “iron brother” China, predictably, has not responded to pleas. China is not known to give things gratis – only loan that must be recovered with heavy interest.
Another problem stares in the face of the caretaker government is the likely imposition of economic sanctions. Pakistan has failed to do enough to block funds that go into money laundering and terror funding. The Task Force is to meet later this month, and among the last pleas of the Abbasi Government that bowed out to make way for the caretaker government on June 1, was to seek time till November since Pakistan is preparing for its elections.
Dawn newspaper called the latest depreciation as a ‘surprise’ and noted that it had “jolted markets on Monday, with its effects lasting through the next day as the stock market came under heavy selling pressure.”
The first devaluation last July saw the Pakiatani rupee tumble to over 100 against the US dollar. The decline of Rs4.4 to the US dollar last Monday saw the exchange rate land at Rs119.9 from Rs115.5 against the US dollar. It was “not the largest single-day decline but appreciable nonetheless,” the paper said in an editorial.
The pressures leading up to the move had been accumulating relentlessly since March when the last such adjustment took place, and it was common knowledge that another round was due.
The ‘surprise’ in the move was that in view of the dire stress in the economy, it was left to the interim government to carry out. But it made sense in that the interim government was required to withdraw the political support that was propping up the rupee artificially over the years.
This reference is to the Nawaz Sharif government of four years, followed by hisPML-N party’s Abbasi Government that kept the rupee floating.
The newspaper underscored the abject failure of the successive governments on the economic front.
“The revival of growth touted by the PML-N government as its signature achievement is no different from preceding growth spurts seen by the country, most recently in the Musharraf era, in that it was unsustainable. In both cases, what we saw was a short-term boom procured through large injections of foreign capital, whether through borrowing, aid or foreign investment, that depletes the reserves and weighs on the fiscal balance. In this case, the growth spurt was not even as massive or broad based as that of the Musharraf era. The government continued to cling to the hope that the spurt of Chinese investments that entered the country during its tenure would somehow breathe new strength into the external account, but this sounded increasingly like a futile expectation.” The newspaper noted.
“For now, it is enough to note that the cycle of boom and bust that has been the biggest legacy of our economic management for well over four decades, ever since the move towards an open and market-driven economy got under way, appears to just have completed one more revolution.
It lamented that “The incoming government will inherit another bankrupt treasury, depleted reserves, and it will repeat the same mantra with which every government for decades now has begun its term: ‘we inherited a broken economy.’
“The continued widening of the current account deficit is now ample proof that gunning for growth without reforms is a folly that must not be repeated.
It warned that “The next government must bear this in mind when embarking upon its ritual journey to the IMF at the start of its tenure.”