Rupee collapse is the reason behind all ills Pakistan is facing

Rupee collapse is the reason behind all ills Pakistan is facing


Forget about documentation of economy when you can readily make profit here and there

LAHORE (Web Desk) – With the rupee nosediving to the levels never seen before, Chief of Army Staff Gen Asim Munir on Sunday assured businessmen of taking the required steps as they demanded more control over the money market amid the widening gap between the official exchange rate and the open market.

The rupee depreciation has wide ranging effects from triggering and fueling inflation to reduced purchasing power and food security crisis – directly impacting people and businesses.

Read more: IMF condition dragging Pakistan rupee down the slope with no stop in sight

Here is a summary of what economic experts are saying about the prevailing state of affairs and the future scenario.

One of the neglected effects is reduced domestic demand or consumption as people are going through an unprecedented cost-of-living crisis. The overwhelming majority doesn’t have money to boost industries, they are fighting for survival amid rising food prices.

As there is no domestic demand, the elite and upper middle class have very little to offer for domestic industries as they mostly consume imported items. Moreover, their size isn’t large enough to have any meaningful effect as the middle have been crushed since 2018.

Making exports sole priority for economic growth has never been a great anywhere in the world. China is an example as domestic consumption wasn’t a priority – the effects of which are now visible due to the current economic slowdown.

Next comes incentivizing the grey economy [perhaps black economy is the right term]. There is no need to invest in manufacturing or industries or agriculture when hoarding the US dollar and spending the finances in real estate are providing huge profits.

In fact, the idea of industrial development has never gained currency in Pakistan, but this rupee freefall means there is no possibility of diverting resources towards manufacturing or other productive sectors.

So just forget about research and innovation. Who cares about such painful things when the profit can readily be made through swift measures. Hence, neither the existing businesses are investing for such purposes nor there is any scope of new ones joining the practice.

It leads to most disturbing development. Pakistan won’t able be able to expand tax base and boost revenue collection through documentation of economy. Undocumented economy is too attractive to be discarded.

Read more: Pakistan vulnerable to inflation, high interest rate, rupee depreciation, low GDP

Talking about the immediate effects of rupee depreciation is now a cliché. It has generated a vicious circle. Inflation, expensive imports, rising retail and food prices, higher fuel rates, skyrocketing power and gas tariffs, rising transportation expenses, reduced purchasing power, cost-of-living crisis and unsustainable cost of doing business are just an ultimate expression.

Meanwhile, the food security crisis is already being felt and would only worsen as the process triggered by rupee depreciation isn’t going to stop unless someone supports the local currency.

This outcome shouldn’t be a surprise after those advocating a strong rupee were made villains over six years ago as a combination of rupee freefall and the record-high interest rate is destroying everything.