Dollar rate touches new highs against rupee
THE economy of Pakistan has endured decades of domestic political unrest, a fast growing population, deteriorating industry situation, varying levels of overseas investment and a huge expensive military set-up to run in order to support our friendly neighbours and keep others within their limits.
Recently Pakistani rupee depreciated to an all-time low Rs 200 against the dollar mainly due to prevailing political uncertainty (Investors become more conscious for making any investment in the country and exporters held their earnings outside the country amid a consistent fall in rupee value) and high demand for import payments (Importers have engaged in panic buying, provisional figures for balance of trade as per data released by Pakistan Bureau of Statistics for the month of April 2022 was (-)697,590 million in terms of Rupees and (-) 3,782 million in US dollars*dollar rate taken as 1$=Rs 184.48)
For the sake of calculating impact of dollar rate change on balance of trade we just assume that imports & exports remain the same in the current month of May 2022 and given the present day dollar rate of 1$=Rs 200 the balance of trade figures would then be (-) 756,400 million in terms of Rupees, this means without even adding a single new import we will be paying more for our imports.
This may look simple but this has a trickledown effect on economy, depreciation of Rupee against dollar not only inflates import bill but also increases domestic price level, thus reducing the purchasing power of people and thus causing inflation in the country.
On the other hand rupee exchange rate depreciation with respect to US dollar will also add billion of rupees in public debt.
This rise in public debt would increase interest payment, will reduce room for development spending and would lead to higher budget deficit.
The result would be even more accumulation of public debt (more restrictions from IMF with harder and harder terms to comply with).
Current Government has decided to take immediate action for stabilizing the economy and to put a hold on dollar uptick and in an attempt to do so has announced to put ban on imports of all non-essentials luxury goods.
This would certainly help in reducing the import bill. On the other hand, IMF in its bailout package would demand a lot of subsidies to be removed like subsidy on fuel, discontinuing the tax amnesty scheme, power tariff increase and additional taxes.
