Economic costs of the crisis


The management of an economy is the most arduous task due to its connectivity with a myriad of economic and political variables, more so in developing countries where continued political instability has played a predominant role in decelerating economic progress. The result is that nearly 45.7 per cent of the population in Pakistan still lives below the poverty line, as per a survey conducted under the BISP programme during the last regime. And regrettably, our politicians continue to indulge in the politics of self-aggrandisement with criminal indifference to its likely impact on the economy and the lives of people.

With the ‘dharnas’ staged by the organizers of the Azadi and Revoution marches in Islamabad, and with no end in sight of the resolution of the political crisis, the people have already started feeling the adverse impact of this impasse on their lives, particularly the citizens of Islamabad who have become hostage to the madness. The All-Pakistan Traders Association (Anjuman-e-Tajran Pakistan) has already filed a petition in the Islamabad High Court against Imran Khan and Dr. Tahir Ul Qadri for allegedly violating fundamental rights of the public in general and the traders at large.
These sit-ins in the red zone are also creating a ripple effect on the national and global level. Since 14th August, when the Azadi and Revolution marches were launched, the economy is reported to have sustained direct losses of Rs. 800 billion, besides indirect losses running into several hundred billion rupees. Investors are reluctant to make investments as they have already sustained losses to the tune of Rs. 450 billion so far at the stock exchange. There has been a slowdown in exports and the import of raw materials has declined. Economic experts believe that this will lead to the swelling of the trade deficit, putting further pressure on the already fragile economy.
There are also growing concerns that the IMF might possibly delay the release of another tranche of US$550 million which it is expected to release next month due to prevailing political uncertainty in the country. The importers have reportedly started buying dollars to secure their forward deals and the exporters are also holding back their receipts in the hopes of further depreciation of the rupee. The rupee in fact, has already fallen to a six-month low against the dollar, leading to an unexpected rise in the public debt to the tune of Rs. 350 billion.
Depreciation in the value of the currency of a country against the dollar or any other international currency with which they are linked or in which they pay for their imports and meet international obligations, is always cause for concern. The slide in the value of a currency also becomes a political issue.
The government was right to give priority to stabilising the rupee. It is a well known fact that the Pak rupee was continuously losing its value against the dollar and about six months ago, reached the parity value of Rs. 111 against the dollar. The opponents of the government found it convenient to grill the government for its inability to stem the rot. The fact is that the rupee did regain its parity rate of 98 to the dollar. It came about not through a miracle (because miracles do not happen), but through imaginative policy initiatives taken by the finance minister. The appreciation of the rupee value considerably enhanced the international purchasing power of Pakistani citizens. Calculated in terms of rupees, it also lowered foreign debt. The prices of imported oil and food items including tea, witnessed a downward trend, benefiting the masses at large.
It is a verifiable truth that the rupee declined in value against the dollar due to the manipulative machinations of the speculators and those with stakes in the fluctuation of the value of the rupee to create situations where their dollars could buy more rupees. The major players in this regard were the exporters of textiles who usually kept the earned dollars outside the country, estimated in the vicinity of US$ 4-5 billion, to trigger the downfall of the rupee and reap the benefits. What the finance minister did was create a situation that forced these speculators to repatriate their foreign reserves to Pakistan for the fear of losses that could accrue to them due to the appreciation in the value of the rupee. First of all, the government increased the supply of dollar notes in the market. It also made sure that the export earnings were immediately brought back. The import of gold was banned to avert its smuggling to neighbouring countries. A stringent regime of administrative and regulatory measures were put in place to discourage the speculators and manipulators of the exchange rate market. The speculators were beaten at their own game by prudent policy initiatives put in place by the government
The egregious political environment within Pakistan is also sending negative signals to the outside world. The heads of states of China and Sri Lanka have postponed their scheduled visits to Pakistan. What a shame, that just when the economy was showing signs of revival, duly endorsed by the IMF, the World Bank, Gallup Survey and Mody’s, the irrational behaviour on the part of some politicians threatens to nullify all achievements and push the economy to the edge of a precipice.


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