Stabilizing Pak rupee
Pak Rupee is witnessing all time depreciation since August 2018. The State Bank of Pakistan (SBP) reduced its intervention in the interbank market consequent to an agreement with IMF in May, 2019 to end control on the Rupee for free movement to find its real parity with US Dollar.
Normally stable economies with good governance and controls follow this policy and their currencies find an equilibrium vis a vis US Dollar without any intervention.
In Pakistan, the government prior to 2018 intervened and kept the dollar around Rs. 100, despite many challenges.
However, the incumbent government has also injected about US$ 6.00 billion, yet it has not been able to control continuous depreciation of Rupee.
One wonders when Pakistan’s currency devalues and when it depreciates. The purposes and reasons of both being different.
In any case the consequential effect on Pakistan’s fragile economy is far reaching and multi-dimensional.
Marginal rise in recent exports as such cannot be attributed to devaluation, as most of the inputs for exportable products are imported and depreciation effected their international competitiveness also.
The depreciation has, however, adversely impacted the economy, the prices of POL products, edible and food commodities, pharmaceuticals and industrial inputs have witnessed more than fifty to hundred percent increase to the disadvantage of the consumers and domestic industry rendering it uncompetitive and are still on the rise.
Conventional and economic efforts of the government to keep the Rupee Dollar at a realistic parity would not successfully work as there are a number of other factors which need to be addressed on war footings by improving governance in the various sections of the SBP.
Reportedly some exporters are engaged in an annual pilferage of US$ 1.5 B of foreign exchange in exports.
Whereas, under invoiced and clandestine imports, which not only deprive the country of the much-needed revenue on account of federal taxes and duties, causes siphoning out of about US $ 10 B from the country in imports annually.
The government and the SBP need to keep themselves abreast and well informed of the mega foreign exchange leakages which are costing the country colossal foreign exchange loss and depreciation of the Rupee.
The depreciation on one hand is unnecessarily increasing country’s foreign debt and on the other it is inflating the POL prices. POL pricing is riddled with legal and procedural aberrations.
Depreciation of Rupee extends illegal and unintended benefits to the Oil Marketing Companies and refineries on account of (i) pricing of MS on old and redundant Naphtha Formula, (ii) non-capping of OMCs and dealer’s margins, (iii) addition of un-admissible premiums, (iv) depriving GOP of profits above 40% rate of return, and (v) deemed duty levied in the guise “Protective Duty”.
Correction of deliberate legal aberrations can bring down the prices of MS and HSD by at least Rs. 25 to Rs. 30 per liter even at the current international prices and dollar parity, which can further be reduced if the above-mentioned foreign exchange pilferages are adequately plugged by the SBP.
The issue of POL pricing was earlier taken up by NAB and later by the Supreme Court of Pakistan.
The report of the Commission formed under late Mr. Justice Rana Bhagwan Das needs to be made public.
It cannot be advocated to stabilize the Rupee parity with the US dollar artificially, as done by the previous government, but it would certainly tantamount to good economic governance to hold the value of Pak Rupee to an acceptable level till the said pilferages are controlled.
Leaving the Rupee free to find its parity with the US Dollar. In the presence of massive financial pilferages, it will not only be unfair to the economy of the country but would be detrimental for the sustenance level of poor and the down trodden.
The SBP should control the pilferages of foreign exchange, which will not only discourage panic demand and buying of US Dollar, discourage clandestine imports raising the much-needed revenues.
The bank may also like to formulate a long-term exchange rate policy along with ministry of finance in consultation with the IMF inconsideration of the Article XV – Exchange Arrangements and the Article XVIII on Governmental Assistance to Economic Development for ensuring balance of payments.
There is also a dire need to draw long term policies considering the provisions of the Marrakesh Agreement Establishing the WTO which recognizing that bilateral and multilateral relations and policies should be made with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services with the objective enhancing exports for sustainable development.
The policy makers also need to give special attention to the recent Act tabled in the in the US Congress titled “Afghanistan Counterterrorism, Oversight, and Accountability Act of 2021” and its implications on Pakistan.
—The author is former Chairman National Tariff Commission And Ex-Economic Consultant NAB & the World Bank
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