Saturday May 18, 2019
The rupee seems to be heading down a steep slope. In the last few days, it has dipped to record lows, making it the worst-performing currency in Asia.
Analysts predict that the worst is not yet over. The rupee is expected to go through another bout of devaluation in the coming days when Pakistan gets the first credit tranche of the $6 billion loan from the International Monetary Fund (IMF).
· A weak rupee, against the dollar, means higher cost of imports. And the more Pakistan will have to pay for its essential imports, such as oil, the high goes its Current Account Deficit (CAD) – the value of imports in comparison to exports.
· The devaluation will immediately reduce the size of the economy. Prior to the recent weakening of the currency, the Pakistan economy was valued at $313 billion, which fell to $280 billion. It is further expected to plunge to $270 billion.
· A weak rupee means more expensive smartphones, computers, cars and other imported goods. Also, bye-bye to any foreign holidays you have planned for the summers.
· A weak rupee is peddled as being good for exporters. Since now they get more for their value. But last year, when the rupee was devalued by 36 per cent, exports only registered an uptick of 0.12 per cent. So this essentially pokes holes in the federal government’s logic that devaluation will boost exports.
· A struggling rupee leads to inflation, which is already at a nine-year high of 9.2 per cent. Inflation, on the ground, translates to costlier petrol prices, which impacts how much we pay for electricity, food and other essentials since the cost of transportation goes up. Expect petrol prices to nudge up further in the coming days. This means that the cottage industry, which is the lifeline for daily wage workers, will struggle to survive. The price tag of doing business will also go up.
· Even if the dollar's gains Rs1 against the Pakistani currency, it adds a total of Rs100 billion to Pakistan’s debt. Now you do the maths.