Stern business of funny money

In the mid-1990s the Soviet Union had collapsed and my friend Tariq Usman Haider was appointed as the envoy to Ashgabat, the capital of Turkmenistan. I took the opportunity to visit the place, with a friend.

When we arrived at the airport my friend, the ambassador met us at the airport, said that he had organised an apartment for our accommodation as the only hotel in town had been fully booked for the French president who was also arriving a day later. He had also organised transport during our stay and interpreters for a week. He then handed me a fat wad of currency notes and said that these should suffice for our planned weeks stay.

I gawped at the huge wad of notes and said that I really didn’t need that many. He laughed and said that they were equivalent to twenty-five dollars only, and I could give whatever was not spent, back to him. In the event apart from the rent and the interpreters the money was enough for a week’s stay, food, some shopping and all that we could find as entertainment. If we are not careful our currency is heading in a similar direction.

After a stage, devaluation becomes its own justification. The fact is that there is a huge hunger for foreign currency and such disdain for our own that no level or exchange rate seems correct.

The Indian Rupee is still 82 to the US Dollar, much the same as it was when we were a hundred to the dollar. Surely, our purchasing power parity has not slid 250% since then.

Has the Indian worker become three times more efficient than ours in the last four years? Then why has our currency slid so far and so fast?

The first and foremost reason is that we are unable to balance our foreign currency account. This despite the huge remittances sent by our nationals working abroad. There is such a fascination in our country for “foreign goods” that we will prefer to buy them even though a Pakistani one is available at half the price.

So imported chocolates, sweets, sugary drinks, shoes, clothes, toys are all lapped up at any price. Our retail chains have become masters at picking up outdated, expired, surplus or defective merchandise abroad, mis-declare and undervalue goods through customs and put it on the shelves here at much the same prices as the duty-free outlets of the Gulf. The expiry dates are rubbed over and new ones printed with no qualms of conscience.

The first thing we have to do is to tighten our valuation systems at customs, screen the goods coming in properly and charge them the full customs duty and sales taxes that our own manufacturers have to pay. It would be better to ban or restrict non-essential luxuries and consumer goods for a period of six months as permissible under the trading rules. This especially when locally- made products of the same category are available. If we have to do without cat and dog foods, imported chocolates, and fancy wrist watches for some time, so be it.

If you look through the official statistics for imports you can see that;

“sugars and confectionary,

Pulp of wood

Edible fruits and nuts.

Essential oils, cosmetics, toiletries

Wood and articles of wood

Furniture, lighting signs...

Glass and glass ware”

Just the above items in our import statistics list are valued at over 1.5 billion dollars per annum. I am sure that their values are grossly undervalued to escape customs duty. Dollars to make up the difference between the invoiced price and the real price are then purchased from the open market and remitted. This pressure leads to a widening gap between the “official interbank rate” and the open market rate.

On top of the requirement for such under-invoicing is the run on the Rupee. Everyone, be it a billionaire or a simple housewife, wants to transfer their savings into the US Dollar. They see the rupee as weak, the government unstable and feel that their savings are insecure. So, there is such desperation to get our money abroad that any means, legal or otherwise, are being used. The banks are enjoying the instability and converting money at rates of their choice and making the biggest profits they have ever made.

At the moment, the IMF is the only solution. We have to sign the agreement but then really put our house in order. The huge devaluations have made the prices of essentials like petroleum and imported foods so exorbitant that demand is bound to be curtailed. This provided we can minimize smuggling, not only over the international borders but through the Afghan trade as well. If our state is unable to do this then frankly, we have completely failed as a nation state and do not deserve to go on.

Afghanistan’s imports are also financed by our dollar earnings. How these are to be recorded and regularized is also a matter of grave concern. After having helped the Afghan’s through their difficult days we need to ask them to cooperate in our crisis.

To balance our books domestically we need to start a genuine austerity campaign, not a sham one. The Ministries have to be cut to a maximum of 16 as they were before we got poor. The perks of all officialdom, civil or military, have to be drastically cut. The ostentatious style of governance has to come to an end. This not from the bottom up but from the top down. The phalanx of security cars following the big wigs have to be sold off. The surplus vehicles from this source alone will be enough to staunch the import of cars for a year or so. The large residential properties used by officialdom have to be cut to size. The state and state institutions own vast real estate which they don’t need. These must be disposed of. All civil and military budgets have to be cut back. Loss-making state-owned companies must be privatized or shut down and assets sold off.

The money so raised should be used to educate our youth with better skills so that they can fit into a modern economy. Then our exports will also boom and our industry will flourish and there will be plenty of jobs. Current accounts will be in surplus, both foreign and domestic.

This is precisely what the IMF is saying to us, but politely.

But who is going to do this?

An IK government, which led us into this mess in the first place, or the current one that is haplessly floundering about in the mire?

If we do not find solutions quickly for sure Pakistan is doomed.

Copyright Business Recorder, 2023