The after-effects of the International Monetary Fund (IMF) did not take long to rear their ugly head. Barely a few days after the deal was finalised, the value of the US dollar against the rupee touched an all-time high. The US dollar yesterday peaked to the highest-ever level of Rs148.5 in open market. In interbank too, dollar touched an all-time high of Rs147, showing a surge of over Rs6 in a single day, before closing at Rs146.52.
It cannot be said that the devaluation was not expected. The rupee had been devaluing at record accelerating levels for the earlier part of the year. Indeed it can be argued that the US $6 billion load that Pakistan borrowed from the IMF took so long precisely because our government was trying to mitigate the harsher outcomes m financial package. Yet it seems that the wait was not perhaps worth it considering the rupee did immediately devaluate, leaving the currency market to turmoil.
The decision to drop our pride and allow devaluation of our currency is always thought to be better for the long-run. The devaluation is due to lifting the fixed rate and allowing a market-based exchange rate mechanism, which will see limited intervention by the central bank now. It can be argued that the State Banks was spending millions to maintain an artificially low exchange rate, and this system was not sustainable considering our depleting reserves and decreasing export numbers.
Yet just because the fall was expected does not make the wound hurt any less. The devaluation will have a steep political price for the government, which is already facing backlash for inflation of gas and electricity prices. The fact that the SBP governor is a former employee of the IMF will not go unnoticed by those blaming the government for the SBP’s policy. A weaker currency is likely to fuel the inflation, which is already over 8pc, with power and fuel prices hit especially hard. The currency fall can also be debilitating to business owners and traders who import materials and products from abroad. And of course, those who will be hit the hardest will be the middle and lower classes, who are already suffocated in a crippled economy.
To those stakeholders, the promise that these harsh measures are good for the long-run are not of much reassurance. There is bound to be further backlash against the government, which has responded by wisely making a committee to control devaluation.
https://nation.com.pk/18-May-2019/the-currency-turmoil
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