Amid growing fears of an economic meltdown, senior analysts have said that the government needs to fix responsibility for the depletion of Pakistan’s foreign exchange reserves in a matter of months otherwise “course correction” won’t be possible.
The US dollar appreciated sharply within the last three days, crushing the rupee in a record-shattering rally after Ishaq Dar, the economic wizard of the PML-N, gave up his rationality-defying efforts to artificially bolster the currency as the government’s unsuccessful efforts to convince the International Monetary Fund (IMF) to revive the much-needed bailout program for the cash-strapped country.
According to the State Bank of Pakistan (SBP) data, the rupee further crumbled in the interbank market on Friday, closing at Rs262.6 to a dollar, down Rs7.17 or 2.73% from Thursday when the Pakistani currency fell 9.6%—the biggest one-day drop in over two decades.
The rupee free-fall began after foreign exchange companies removed a cap on the exchange rate, a key demand of the IMF as part of a program of economic reforms, it has been agreed on with Islamabad for the revival of the multibillion-dollar loan program.
Pakistan secured a $6 billion IMF bailout in 2019, which was topped up with another $1 billion last year, but the global lender then stalled disbursements in November due to Pakistan’s failure to make progress on fiscal consolidation and economic reforms.
The government was desperate to secure external financing, with less than three weeks’ worth of import cover in its foreign exchange reserves, which fell $923 million to $3.68 billion in the latest SBP data.
“Who is responsible for the depletion of our foreign exchange reserves in a matter of months? The government has to fix responsibility,” said Naveed Hussain, Editor (Print & Digital) of The Express Tribune, while speaking in ExpressNews talk-show ‘Experts’ on Thursday.
“In April 2022, the state coffers had nearly $11 billion, but the reserves plummeted to $7.8 billion by August,” he added while referring to the time when the PDM took over the government after ousting Imran Khan through a vote of no-confidence. This quick depletion of the forex reserves was blamed on the PDM government’s indecisiveness vis-a-vis revival of the IMF program which had been stalled since the last days of PTI’s government.
“In August, the IMF Executive Board revived the bailout program after a hiatus of six months, approving a $1.1 billion tranche. Subsequently, the reserves swelled to $8.8 billion in September,” Hussain said.
Meanwhile, a simmering tug of war between the then finance minister Miftah Ismail and Ishaq Dar took a turn for the worse, which ended in an unceremonious departure of Miftah Ismail from ‘Q Block’. Dar made a ‘triumphant’ return, promising to bring down the value of the greenback to less than Rs.200. He took rationality-defying administrative measures and fixed the interbank rate of the dollar at around Rs221.
“When Miftah Ismail quit, the SBP reserves stood at $7.8 billion, but they had dropped to $3.5 billion as of Thursday, triggering talk of economic collapse in the international media,” Hussain said. “Who is responsible for nearly 45% evaporation of our vital foreign exchange reserves in a matter of three months?”
Ayaz Khan, Group Editor Roznama Express, said that Miftah Ismail was a “thousand times better” finance minister than Ishaq Dar but he is not acceptable because he does not belong to the “House of Sharifs”.
He said that “grouping within the PML-N” was responsible for the current economic morass in the country. Khan also blamed Dar’s reluctance to “unpeg” the US dollar for the depletion of the reserves. He faulted the “Dar peg” for the sharp drop in the forex reserves
Khan added that those who believed or still believe that Dar has some secret “magic wand” which he can use like he did in the past to extract the country from an economic quicksand were equally responsible for damaging the national economy.
Aamir Ilyas Rana, Bureau Chief Express News Islamabad, said that the common man could not expect relief because the “special people” have always been close to the government irrespective of who was in power. He particularly targeted his criticism at Miftah Ismail for his public outburst against his predecessor, Ishaq Dar.
“The companies owned by Miftah Ismail made windfall profits during the tenure of Imran Khan,” Rana said. “They were happy and used to proudly say at that time that people should brace for more inflation because we’re mostly importing things that will become more expensive as the US dollar appreciates,” Rana recalled.
Faisal Hussain, Bureau Chief Express News Karachi, also blamed Ishaq Dar for the free-fall of the rupee and the resulting financial crisis. “One person’s ego has destroyed the whole country and its economy,” he added. “Miftah Ismail, a celebrated economist of PML-N, has directly blamed Ishaq Dar for destroying the economy, but no one can dare question dar.”
Muhammad Ilyas, Bureau Chief Express News Lahore said that the government had no option but to buckle under the IMF pressure, no one, not even friendly countries, we’re willing to lend money without the umbrella of the global lender.
The US dollar rally – which has already added another nearly Rs.4,000 billion to the public debt within three days – is likely to open up the floodgates of inflation, while the compliance with the IMF conditions, which are a must for the revival of the loan program, would further escalate the cost of living for the common man.
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