The downward trend of the Pakistani rupee vis-a-vis all major currencies of the world continues unabated. The rupee peaked at 66.79 to a dollar in the open market on Tuesday, and after State Bank intervention, strengthened to 64.90 rupees. However, prior to closing it had again surged to 65.20 rupees to a dollar.
Was the State Bank's prescription not strong enough to cure the malaise is a question that is being asked in the open market. The strength of the State Bank's prescription was, without doubt, based on its assessment of the momentum that would be generated as a consequence of its sale of a specified number of dollars to dispel the market's impression that the State Bank would not intervene to check the rupee decline.
That the State Bank miscalculated to some extent is evident from the continuing slide in the value of the rupee. However, a decline in the value of a currency is generally regarded as a symptom of the disease and while the short-term remedy may well be State Bank intervention through selling dollars in the open market to provide support to the rupee through readjusting supply and demand; yet this is considered a temporary measure at best.
The long-term measure required is to undertake macroeconomic reforms that are geared towards increasing domestic productivity and exports, which would generate sufficient economic activity to provide stability to the rupee.
There is little doubt that the Finance Minister is using all fora, international as well as domestic, to reveal the abysmal state of the economy left behind by not only the Shaukat Aziz government but also by the Caretakers. With food inflation, wheat shortage, and load shedding, to name just a few economic issues that the common man is grappling with, there is little disagreement amongst the populace about the veracity of Dar's claims.
In addition, the election results of February 18 clearly show that the Pakistani public gave a resounding vote of no-confidence to the former government. Thus to belabour the point now is essentially restating the obvious.
However Dar must also be aware of the fact that markets are highly volatile and carefully heed statements of the country's economic managers. As the Finance Minister he now heads the team of economic managers and he would be well advised not to focus on the considerable economic problems that he has inherited but, instead, to highlight ways and means to resolve the crisis.
Thus, dwelling on past mistakes is not going to make his task any easier; in contrast it is fuelling negative speculation in the market that maybe a major contributory factor to the continuing rupee decline.
While it is important for an elected government to clearly identify its starting point, which is extremely low in all economic indicators including the rupee value by all standards, yet at this stage it maybe more appropriate for the government to appoint an independent commission whose objective must be to prepare a white paper that would clearly show the state of the economy on the day the new government took over.
The commission should include members of the opposition as well as the government and informed individuals from the private sector. The findings of the commission would, more cogently, reveal to the people of this country not only the state of the economy when the new government took over power but also the gains that are to be attributed to the new dispensation in an impartial manner.