Daily Times

The Pakistani rupee is fast plummeting into oblivion and does not appear to show any signs of slowing down. The rupee has climbed to an unprecedented 270 per dollar today, the biggest one-day drop in nearly two decades, and a clear sign that the country needs external financing to pull itself out of this crisis. The drop came a day after foreign exchange companies removed a cap on the currency, as per the instructions of the IMF who preconditioned a transition towards a market-based exchange rate as part of their bailout package for the country.

Pakistan is now faced with a crisis of dynamic proportions; inflation has accelerated to its highest in decades largely due to supply disruptions, prompting the central bank to raise interest rates to a 24-year high. Foreign reserves have now dropped to backbreakingly low levels, at $4.3 billion, the country only has enough to cover a month’s worth of imports. A $1 billion loan from the IMF remains stalled until Pakistan makes good on its promises of fiscal consolidation. The government has now resorted to a series of austerity measures that include limitations on imports and a 10 pm curfew, measures which do not address the problems that catalyzed this crisis in the first place.

The country may be able to avoid debt default with IMF help and loans from strategic allies for the time being but it cannot rely on foreign capital inflows forever. An economy that produces too little and spends too much is bound to come crashing down every few years. With each successive economic crisis, things get a little bit worse as the debt bill gets bigger and resources more scarce. The real problem lies with the foundations of our economy itself; an excessive emphasis on hand-outs and desperate borrowing as opposed to widening the tax bracket and generating revenue, the cornerstone of any sustainable economy. If global bodies such as the IMF are willing to step up and modify the framework of debt financing for emerging economies such as ours, it is only fair that we make a concerted effort to improve our macroeconomic policy. *