It’s not very usual, to say the very least, for any country to record the highest foreign exchange reserves in its history on the same day that its currency crashes to a 10-month low because any welcome addition to the national reserves, especially when it is quite unexpected and as large as $2.75 billion, acts as a shot in the arm for the local currency. Yet that is precisely what happened in Pakistan on Tuesday as forex reserves touched the historic level of $27.4 billion after the state bank received $2.75 billion from the IMF as part of its general allocation of $650 billion through Special Drawing Rights (SDRs) to boost global liquidity. Yet the rupee continued its unceremonious fall from grace as it shed another 77 paisa against the dollar to settle at 165.20, a level not seen since end-September 2020.
What is more, it is still not clear when or even if this slide will stop or, even worse, if the state bank is really doing anything about it. So far, though, all that the central bank has said about the phenomenon is that reserves come under pressure whenever large debt repayments, etc, are due and that there’s no reason to worry because there’s plenty in the kitty at the moment. But the present numbers is not what is worrying investors and stakeholders as much as the trend that has now more or less cemented itself. And till the central bank explains what is really happening, and when we can expect a floor under the rupee, it is only natural for businesses and investors to lose confidence in the ability of the local economy to stay on its feet for much longer.
There’s also the matter that every time the rupee weakens the quantum of foreign debt increases in real terms. And since we’re still a long way from generating enough revenue to pay back our debts without taking more loans, the present round of devaluations, which is caused by debt repayment obligations, is also inflating the overall value of our outstanding debt.
It seems, then, that we are going round in circles and since nobody is doing anything about the uncertainty that is being caused, the government will only have itself to blame if the business community starts looking elsewhere for more stability. It must also be said that the state bank’s silence on the matter borders on criminal negligence. It cannot watch from the side like a silent spectator as confidence in the local currency, and the national economy, is eroding before everybody’s eyes. The Bank is independent, no doubt, but that does not justify its actions, or rather lack of actions, right now. *