The Indian rupee is currently trading at 49.145 per dollar while the Pakistani rupee was traded at 83.50 to the dollar on Tuesday. Time was, some years back when there was parity between the two currencies, and prior to that the Pakistani rupee was stronger in comparison to the Indian rupee against the US dollar.
Talking to Business Recorder, well known economist Senator Khurshid Ahmed said that "today there is no parity between the currencies of the two neighbours as Indian rupee is firm against dollar while Pak rupee is under immense pressure".
He cited Pakistan's weak macroeconomic fundamentals, coupled with political instability and deteriorating law and order situation as the major cause of erosion of Pak rupee value against US dollar. He attributed weak macro economic fundamentals to previous government's policy of continued subsidisation of oil products to meet its political compulsions, a strategy that led to the current economic imbroglio with the government seeking foreign assistance estimated at 10 billion dollars.
Khurshid said that the main reason behind the Pak rupee erosion in recent months was that it had been maintained artificially by the previous government only against the US dollar.
However, he also held the new government culpable as it failed to give a clear message to the business community by adopting a clear focused policy. In addition, Pakistan's foreign exchange earning capacity has diminished owing to law and order problems and power outrages. The foreign exchange outflow was rising due to increasing imports while exports dwindled, he added.
Khurshid said that as long as Pakistan did not increase its production and exports, the currency would remain under pressure due to low foreign exchange earning capacity. He expressed fear that if the current situation was allowed to persist, Pakistan might not be able to compete with Bangladesh in the global productivity market and in terms of macroeconomic fundamentals.
"Give up the notion of comparing Pakistan with India in terms of the economy as the latter has fully taken advantage of political stability and is reaping the dividends of laying strong democratic foundations as well as laying the groundwork for economic fundamentals," he stated. "In marked contrast the Pakistan economy is totally in the hands of non-economists, imported from international financial institutions," he added.
"The result is there for all to see," Khurshid said, adding that the only way out was political stability, with good governance and ensuring that good policies are actually implemented.
Moreover, he said, the government has to reduce the budget deficit by cutting down administration as well as development expenditure drastically and improve law and order situation. "The problems for Pakistan are compounding with depreciation of Pak rupee as total foreign debt is increasing. This would also further aggravate already sky-rocketing inflation in the country," Khurshid said.
Khalid Rahim, another economist, said that industry was ignored by the successive governments but the prevailing law and order situation was the worst blow to the economy because it affected inflows. "No one is ready to bring investment to Pakistan," he added.
He said that the new government was expected to restore the faith of business community by adopting business-friendly policies that would have given it a message that there was some improvement in law and order situation. This would have boosted the confidence of business community and increased local and foreign investment. "But there is even more frustration today than there was during Musharraf's final days."
Economic analysts believe that Pakistan has enough resources to meet the existing challenges, but there is need to realise it at the top level that better law and order situation, political stability and good governance are key factors to attract investment. Pakistan needs immediate inflow of around 10 billion dollars, as stated by the IMF, to support the rupee, and increase investment and exports.