Pakistan has been caught in a Catch 22 situation as the business community and political leaders have demanded immediate intervention of State Bank of Pakistan to check freefall of Pak Rupee whereas the International Monetary Fund, the international lender, has advised SBP to continue exchange rate flexibility to facilitate external adjustment to support exports and economic growth, financial experts told Business Recorder.
It may be added that the rupee depreciated around five per cent against the US dollar in interbank foreign exchange market between December 7 and 15. The business leaders have warned that depreciation of currency by 5 per cent against dollar in a few days has impaired all the sincere efforts to stabilise exchange rate since last many years, while the common man is facing increased hardships.
The value of Savings of the masses have automatically been eroded without their fault as inflation has severely started to hit the entire population of the country. Demanding immediate intervention of SBP the Lahore Chamber of Commerce and Industry (LCCI) has said that rapid devaluation would lead to lower industrial productivity, surge in debts, harm already struggling exports, inflation hike and reducing the purchasing power of the masses that would pose serious challenges for the economy. The sudden devaluation of Pak rupee has raised complexities for all economic sectors. The surge in dollar price will increase the import bill as prices of all imported oil, raw material and other essentials will go sky high.
Dr Shahid Rasheed Butt Patron Chamber of Small Traders Islamabad and former president ICCI told business Recorder that our export sector has been addicted to subsidies, tax breaks, bailouts, and currency devaluation and the recent development will deprive them of incentive to upgrade machinery, improve quality and find new markets. FPCCI officials said that the recently-adopted exchange rate policy is imperfect which has resulted in economic losses and increased uncertainty among the masses and business community.
There should be a limit to the erosion in the exchange rate so that masses can be saved from the looming flood of inflation as it will force millions more to live below the poverty line as depreciation of rupee will increase the prices of some items up to 20 per cent. Zubair Tufail, president of FPCCI said that businessmen are worried over a massive depreciation of rupee in the last few days and warned this will have a devastating effect on the 'already beleaguered' economy. "The depreciation will increase the prices of all the essential items and inflation will go sky high," he said.
FPCCI president advised the SBP to intervene and check the currency depreciation. The government is also advised to reduce cost of energy instead of allowing flexibility in exchange rate. It may be recalled that Pakistan's international lender IMF staff mission visited Islamabad during December 5-14, 2017 to conduct discussions on the first post-programme monitoring discussions since the end of Pakistan's Extended Fund Arrangement (EFA) in September 2016. At the conclusion of the mission, the team leader said, "The recent move by the State Bank of Pakistan to allow adjustment of the exchange rate is welcomed, and continued exchange rate flexibility will be important in the period ahead."
However in a statement IMF clarified, "The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF's Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that is subjected to management approval, will be presented to the IMF's Executive Board for discussion and decision.