Do you remember an old adage:
‘ye cheez to Takkay ki nahiN hai’ (This thing is not worth a Takka).
Well, today the tables have turned. What was once true of BD Takka is now true for a Pakistani Rupee. As of today 1 Bangladeshi Takka equals 1.14 Pakistani Rupees . The phenomenal slide of Pakistani Rupee, which started around January 2008 continues unabated. Pakistani rupee is now trading at very close to 80 Rupees to a US dollar. Yahoo Finance was quoting Pakistani rupee at Rs 78.375 to a US dollar on October 6, 2008.
We also had a post on this topic back in May 25, 2008 when Rupee had slid down to Rs 68 for a dollar but this time slide in Rupee’s value seems like the steepest in history of Pakistan. Rupee has lost almost one third of its value in the past 10 months.
The question that everyone is asking is whether current Government is capable of controlling this situation or is it beyond anybody’s control.
Pakistan’s finance Minister (since May 12, 2008) is Mr. Naveed Qamar and atleast I’ve not heard anything from him about what are Government’s plans to bolster Rupee’s value or to stop fast depleting foreign exchange reserves of Pakistan (now down to approx $8.1 bn).
What is happening to a common person among all this turmoil is depicted well in a sher by Anwar Masood.
“jo dil pe guzarti hai raqam karte raheN ge”
kal tum ko bata deN ge raqam kitni bani hai
Reference:
First ‘Aziz’ and now ‘Tareen’. When our govt. will understand that a good banker is not necessarily a good economist.
And why not Mr. Nasir Hussain, the current husband of Ms. Sherry Rehman. He is also president of some bank / financial institution??
Shaukat Tareen gets top finance position. Following news appears in Dawn of Oct 8, 2008
ISLAMABAD, Oct 7: The government has decided to appoint senior banker Shaukat Tareen as the prime minister’s adviser on finance.
Mr Tareen will head the Executive Committee of the National Economic Council and the Economic Coordination Committee.
Mr Tareen is currently the chief executive officer of the Saudi Pak Commercial Bank. He has previously worked as president of Habib Bank and Union Bank, and as country head of Citibank in Thailand.—Reporter
The exchange rate is determined by the supply and demand of the currencies. So if the country runs a huge trade deficit (imports - exports), then its currency is bound to fall. Unless it has some other source of foreign exchange that is. In the post-911 situation, Pakistan has lately been receiving $5-6b of anual remitances from abroad. This means that we can run a trade deficit of $5-6 b without getting into trouble. If we are receiving some foreign aid (not loans), that gives us an extra cushion. But if our trade deficit swells even beyond that, then we are bound to take a hit.
Pakistan’s trade deficit has been rising for quite some time now. In 2005-6, we had a current account deficit of $4.490 billion (the current account deficit is obtained after including foreign remitances). In 2006-7, this rose to $7.016 billion. The only reason why the rupee did not fall then was that we received foreign investment of about $7b or so that year, which covered our current account deficit. This was not a good thing since it meant covering current consumption with foreign investment.
In 2007-8, the trade deficit soared to around $20b and even after including the foreign remitances the current account deficit came to a wapping figure of about $14b. This much we could not cover even with foreign investment, which (as mentioned earlier) is an unhealthy and unsustainable thing to do anyway.
In short, it should not be surprising that the rupee has taken a sudden hit.
We should have started worrying about this problem at least as far back as 2005-6 but Shortcut Aziz and co used to boast that our economy is on a sustainable track even in 2007. The business community used to express the same kind of optimism. People who supported Mush and Shortcut wouldn’t and still don’t want to hear any criticism of their economic mismanagement or at least refute it with proper reasoning.
And about the PPP and PML-N, the less said the better. All they did over the years was to run a single track campaign for ousting Mush and getting their exiled leaders back, and did no homework on how they would address the problems of the country once they returned to power. Now, the government is relying on a foreign bail out package, which would naturally come with strings and again, the amount we get is unlikely to be used wisely.
Over the years, we did not push for manifesto oriented and issue based politics and discourse. If one loved Mush, everything his govt did was good; if one disliked him, everything he did was bad; if one wanted democracy, one ignored the flaws of BB and NS; if one was a jiala, all one did was to raise empty slogans about the ’sacrifices’ of the party and the Bhutto slogan and likewise for the supporters of other parties.
Now we are going to pay a price for it.
Asad, how does that work? If the dollar is going down shouldn’t the value of rupee against the dollar be going up?
Riaz Saheb, I have also read Zardari’s famous demand of $100 bn bailout. At first I thought of adding that statement to my post above but then I thought Zardari being Zardari must’ve asked for this number without any detailed homework and I didn’t think the statement will be taken seriously enough by any donor country/agency to actually loan Pakistan such amount of money.
Rupee’s slide is probably related to flight of capital outside Pak, hence depleted reserves and all of it is probably because of lack of confidence in current Govt.
May be I am taking too simplistic view of complex working of national economy, and I am not an economist either, therefore we would love to hear from our knowledgable readers on what they think are the reasons behind 1 US $ = Rs 80 today.
I think Pakistan should immediately delink from the dollar. This is largely the dollar’s decline compounding the Ruppee’s decline. The Rupee should be floated against a basket of currencies with more weight on the Euro.
Owais,
You plead, “Pakistan’s finance Minister (since May 12, 2008) is Mr. Naveed Qamar and atleast I’ve not heard anything from him about what are Government’s plans to bolster Rupee’s value or to stop fast depleting foreign exchange reserves of Pakistan (now down to approx $8.1 bn).”
My answer: I think Zardari is looking for a massive $100b bailout of his government and Pakistan’s economy by the United States. I think this is just wishful thinking on his part. Just in case you are curious, please read: http://www.riazhaq.com/2008/10/zardari-stirs-contr oversy-wants-100b-in.html
Here’s a recent story from NY Times that might help understand the crisis of confidence pushes Pak rupee down:
“When Mr. Dar asked Mr. Zardari how he thought the government would pay for the subsidy (to farmers for higher wheat price), Mr. Zardari replied, “Print the notes,” according to the two participants, a government official and an associate of Mr. Zardari’s. In an effort to solve the impasse over the subsidy, it was suggested that Mr. Zardari form a committee of experts.
“ ‘I am the expert,’ ” Mr. Zardari said, according to his associate.”
As Wall Street Journal’s Brett Stephens recently put it after an interview with Pakistan’s president:
“The economic crisis Mr. Zardari spoke of as “at least in part, a crisis of confidence in him.”