It’s a boon for some and a curse for others. The sudden devaluation of Rupee has gone largely unnoticed in Pakistan. Yet the devaluation will impact most Pakistanis.
Those receiving remittances from abroad will see some extra cash in their pockets. At the same time, the price of imported goods (petrol, tea, cooking oil, etc.) will rise, tightening household budgets all around.
The 24/7 coverage of the political circus combined with a judicial inquiry has left a little room in print and electronic media for matters that matter. An exception was Khurram Hussain’s exposé in the Dawn about the larger economic impact of currency devaluation.
Currency exchange rates are explained in most beginner texts in macro-economics. Pakistan’s import bill will increase whereas exports will be cheaper and hence more competitive globally, leading to growth in the export sector.
The increase in the price of imported goods will support inflationary pressures. The resulting uncertainty could lead to lower domestic consumption that might not be offset by the growth in the export-oriented sectors.
If the Rupee continues to slide, the government might have to revise interest rates upwards to arrest the flight of capital. The same instrument will be deployed to arrest higher than expected inflation.
Pakistani Rupee, like all other currencies, has gained and lost value in the past. It will do so in the future as well. What should be of interest to our readers is if the timing and determinants of the current devaluation is an outcome of larger macro-economic conditions or are there other dubious forces trying to manipulate the markets, as finance minister, Ishaq Dar, alleges.
Is Mr. Dar to be believed or the central bank? Is every development, or the lack of it, in Pakistan a conspiracy against the ruling class, or is there a greater economic system whose fundamentals impact Pakistan as much as they impact other nations?
Currency manipulation, or at least the accusations about it, is not…