Deep Economic Crunch in Pakistan: Pakistani Rupee devalued to Afghani currency

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Due to poor economic policies of the current government Pakistan Tehreek-e-Insaf (PTI) is facing the worst ever economic crunch of its history. Pakistani Rupee (PKR) has dropped to its lowest rate; One US dollar has an exchange rate of 170 PKR. At present Pakistan has rock-bottom currency value in South Asia even war-hit Afghanistan has more stable currency as compared to Pakistan. On the other hand, a higher dollar exchange rate is directly proportional to a country’s loans so there is huge swell in local and foreign debt of Pakistan. Same time, the inflation rate has been increased to 13 percent so people are living below the average life here in Pakistan.

The value of the US dollar has been rising steadily in Pakistan for the past three months and its value in the domestic currency market has crossed the limit of 170 Pakistani rupees. Until December 2019, the dollar traded between 155 and 158 PKR, but the month of March 2020 remained heavy in terms of debt burden. On March 23, 2021 a lock down was imposed to prevent Covid-19 outbreak in the country. Just 4 days after the lockdown, the dollar rose to Rs 10.

In Pakistan, a new wave of inflation is being feared in recent days due to the continuous rise in the value of the dollar and the depreciation of the rupee. Experts say that the main reason for the fall in the value of the rupee is the increase in Pakistan’s import bill.

Currency dealers fear that if the State Bank of Pakistan (SBP) does not intervene in the market to contain the dollar, it will become more expensive in the near future. Due to the rise in the value, importers also started booking dollars in advance. This has increased the demand for dollars in the interbank market.

While speaking to media former Finance Minister Hafiz Pasha said, as local currency is losing its value it will create a mega economic and inflation disaster in the country. As per data issued by State Bank of Pakistan, PKR 1200 billion increases in public debt in one month, which is really alarming and frightening. “It never happened in our history. Total debt is almost equivalent to Pakistan’s GDP. As local currency worth will decrease there will be an increase in the annual markup. How a poor economy will bear this extra burden. Budget deficit and trade deficit are the major causes of inflation and decrease in rupee value” said Mr. Pasha. “Growth rate is linked with two variables i.e. budget deficit and trade deficit. At the moment it is not the matter of growth rate, but now it is about the stability of the economy of the country. Petrol Price hike is also a damaging factor, which started in the first quarter of this year” he added.

During an interview with Eat News, Dr. Ashfaque Hassan Khan economist and Member of Economic Advisory Council of Government of Pakistan said, the recent jump in the dollar exchange rate is against the basic laws and rules of economics. He categorically blamed Governor State Bank of Pakistan Dr. Reza Baqir that he is just following the instructions of the International Monitoring Fund (IMF), frustrating the government of Pakistan and creating artificial hikes in the dollar price. When the exchange rate of PKR 152 with one dollar our state bank reserves were $ 15.77 billion now these reserves reached to $ 20 billion, it is illogical that reserves are growing while PKR value is shrinking, surely this is not a market based exchange rate. “Pakistan is a developing country so our economy is import dependent, as the dollar rate will escalate the landed cost and cost of production will also grow. Climb of the dollar is directly linked with the inflation rate which finally affects the life of the common man in Pakistan”, he said.

Dr. Ashfaque Hassan Khan thinks Prime Minister Imran Khan has to reconsider his economic team, which is misguiding him. Moreover, it looks like current Finance Minister Shoukat Tareen is also disappointed by the situation and now he is no more interested in the economic policies of the government. Dr. Khan says, “No one is accountable to the people of Pakistan except PM Imran Khan, this inflation is severely damaging the popularity graph of the ruling party. To maintain the exchange rate of local currency is the responsibility of SBP. Apparently it seems that Governor SBP has no stakes in the country, and one day he will fly back from where he came. Dr. Khan believes the writ of government is weak. Government has to establish its writ to control the pricing mechanism in the county. Mafias are involved in price mounting and they are not afraid of law and punishment.

To overcome the current economic crunch Dr. Khan suggests that the government has to remove the governor State Bank of Pakistan (SBP) immediately from his office, and the government has to impose extra tax on luxury and nonessential item’s import.

It is important to share that the federal government has also increased the prices of petroleum products. The Federal Ministry of Finance has issued a notification to increase the prices of petroleum products on September 16. According to the announcement, PKR 5 has increased the price of petrol per liter, after which the new price will be PKR 123.30 per liter. This decision is also a major contributing factor regarding the high inflation rate in the country.

Experts believe the biggest reason for the rise in the value of the dollar is the record imports of $ 6.5 billion in one month while exports are only $ 2.5 billion, which has resulted in a historic deficit of $ 4 billion dollars, which has never been seen in the past. Same time some economic experts think that another reason for the devaluation of the rupee is the uncertain situation in Afghanistan. The United States was giving 5 to 6 billion dollars to Afghanistan. In addition, other international organizations were also supporting Afghanistan’s economy.  Before the Taliban took over, 5 to 7 million dollars used to come to Pakistan daily but now 5 to 7 million dollars are going to Afghanistan daily from Pakistan.

Government has launched a couple of financial support schemes but unfortunately the middle class of the society is not eligible to avail benefits from these financial programs. People are not only worried about their economic conditions but they are also angry at the current Pakistan Tehreek e Insaf (PTI) government. Opposition parties are also planning countrywide protests against the government. Government has to take some solid steps to curtail the inflation and to restore the confidence of the common man. 

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Muhammad Farhan Niazi is a correspondent for Eat News in Pakistan and is an experienced senior producer with a demonstrated history of working in the media production industry. Skilled in feature and news writing, non-linear editing, radio, multimedia journalism, Online journalism, film production, and sound. Strong media and communication professional graduated from University of Peshawar.

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Eat News is a Taiwanese digital media, analyzes current events and issues through column articles, videos, visual aid, and exclusive interviews.

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