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The rupee, somehow, managed to resist sharp fall against dollar as a whole. It, however, gained versus other major currencies on the currency market here during calendar year 2010. On the interbank market, the rupee shed Rs 1.20 against dollar for buying and selling at 85.60 and 85.65.
On the open market, the rupee lost 1.40 versus the greenback for buying and selling at 85.70 and 85.80. However, in terms of the euro, it rose by Rs 7.15 for buying and selling at Rs 112.90 and Rs 113.40. The rupee also appreciated in relation to pound sterling, gaining Rs 3.30 for buying and selling at Rs 132.25 and Rs 132.75.
In fact, the rupee countered well to resist sharp fall versus dollar due to strong demand by importers to meet their payment requirements, in the absence of guiding factors and positive fundamentals. It was very much visible that the rupee minimised its losses in relation to dollar on the back of high inflows in the shape of remittances and export earnings. Secondly, the country also received foreign assistance or aids to fight against terrorism.
Trade deficit has been widening as a result of high imports and falling trend in exports. The current account deficit of Pakistan for July-October 2010 narrowed to (provisional) $533 million, compared with $1.177 billion in the same period of last year (2009), said the central bank.
The trade deficit widened by almost 17 percent in five months (July-November) of the current fiscal year, compared to the same period of last year, as both imports and exports registered double-digit growth. Officials foresee the gap to increase further in the coming months as oil prices are once again soaring in the international market. To the domestic consumers, it will also result in further increase in prices of petroleum products.
The trade deficit--gap between imports and exports--stood at $6.5 billion during July-November this year, which was $938 million, or 16.9 percent, more than the deficit in July-November 2009, according to the data released by the Federal Bureau of statistics (FBS).
Foreign investment has shrunk in the country with the passage of time, mainly because of deteriorating law and order situation and rising political uncertainties, and lack of international assistance for rehabilitation of floods victims and loans from the World Bank, International Monetary Fund (IMF) and Asian Development Bank (ADB).
The exports of non-textile items came down due to world recession, which toppled the whole world, and the most parts of globe are still not out of its shadow. The country's textiles and closing exports increased by a robust 22.73 percent during the first five months of the current fiscal year 2010-11. On the other hand, rising dependence on imported edible items pushed up the food imports bill to 2.15 billion dollars during this period.
Upward trend in the international markets, devaluation of rupee versus dollar and gap between demand and supply could be a solid factor for the higher imports of food items. Besides, despite the act that some improvement has been seen on the economic front, foreign investors are still reluctant to invest in the country. As a result, the foreign direct investment (FDI) remained on the falling side during the five months of the current fiscal year.
But, somehow, some countries are trying to overcome the crisis by utilising their own resources to stand on their own feet. Generally, this country is also under the shadow of world recession. The situation here is a little bit different because Pakistan is not trying to get rid of dependence on other countries, instead of standing on its own feet, though it is not difficult due to several God-gifted hidden and untapped treasures.
We just need to think how we can make the best use of them to avoid dependence. In fact, for the last six decades we have seen many ups and downs but now onwards we have to make sure that our country is self-reliant. So, we must ensure that exports override imports, to get the desired purpose, Now it's high time to decide about the fate of the nation or decisive step for the country. Decide one of the two ways: either to rely on foreign sources, or adopt measures to achieve the objective of self-reliance.
At the end of second quarter of the current fiscal year, the country's foreign exchange reserves showed marginal fall due to settlement of import bills. Actually, in any country of the world, rising foreign investments and healthier trend in the remittances help to build the foreign exchange reserves. Unfortunately, as one of the developing countries, Pakistan lacks positive fundamentals due to unfriendly policies to implement the rules to bring back the economy on track. With destruction of agriculture sector, caused by floods in the country, it is likely that the country exports may face some setback. We have to take realistic and appropriate approach to generate sources in the country.
It was observed that the exchange rate had been stable against dollar over the past few years. However, it is time to assess what impact the ongoing dollar slide would have on the rupee and the economy. The rupee's depreciation against dollar and major currencies can encourage exports by making Pakistan's goods cheaper. A dollar depredation against other currencies and slight depreciation of the rupee against the dollar means that the rupee is depreciating against other currencies also.
The Chinese yuan fluctuated modestly against dollar at 6.8272 on January 5, 2010, now figures at 6.6000. This means that prices of Chinese goods also declined and became more attractive to importers. China's yuan ended 2010 on a strong note, pushing past 6.59 per dollar on Friday to close the year up 3.6 percent and fanning hopes that it would see even more gains this year.
Fortunately, our single biggest import item, oil, is traded in dollars and as long as the Opec countries do not change their exchange rate parities, it would not have a big impact on the value of oil imports.
A dollar slide can also affect foreign investment. The US investor may be just as happy to invest but other investors may see their returns reduced due to the falling dollar. Luckily, a substantial part of the private foreign investment comes from either the US or the Gulf, which have their currencies pegged to dollar. Pakistan's foreign debt payments are likely to be higher because of increase in volume of due payments and interest, and all these payments are to be made in foreign exchange ie dollar, which is bound to affect parity negatively.
The depreciation of dollar was not an unexpected event and there are no clear signals that the government has planned for this contingency. The extra debt payments are likely to increase the budget deficit, or development expenditure. So, now the question is: what could the government have done to avoid this? There is a need to do some stocktaking at the State Bank of Pakistan (SBP) and the Ministry of Finance and its Economic Affairs Division.

Copyright Business Recorder, 2011

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