I am not an economist, but some steps that ishaq dar has taken in the past have been suicidal like freezing foreign currency reserves in their previous stint, issuing a statement that Pakistans economy is on the brink of collapse (when he was finance minister under PPP government) and now asking people to encash their dollars. Why are they looking towards others, maybe his bosses (sharifs) can set an example here. Let them bring their dollars to Pakistan and convert them to rupees to help Pakistans economy. He should also let us know what's happening to Pakistans foreign currency reserves since Pmln took control of the country.
Some of the issues that the government is missing, the foreign currency reserves have dropped almost $3 billion since the present dispensation took over. PPP printed around 525 billion rupees each year, where as PMLN is printing 6.3 billion every day. Without tackling the basics how can the government correct the economy?
Warning has given result. Dollar today in open market is ~Rs 106 and coming down. Actually, I believe if anything extra ordinary do not happens that creates havoc and flight of capital from Pakistan, or economy starts deteriorating in big way, then by March dollar would be below Rs 100.
What is exactly going on? I couldn’t understand it. The foreign currency reserves are quite low. SBP bought 250 million dollars so as to keep reserves in accordance with the IMF requirements. but still rupee is gaining strength. anyone has any idea?
Here is chart that shows how rupee depreciated after PMLN government took over power in May, from ~97 to a dollar (May 2013) to over 108.50 to a dollar (mid December 2013). Since mid December, rupee is gaining ground and today it is around Rs 105.50 to a dollar.
I think such massive devaluation of 12 percent from Rs 97 to Rs 108.50 a dollar since May 2013 was due to unnecessary worries, probably based on impression that Pakistan under incompetent and corrupt PMLN, especially Ishaq Dar running economical affair, would economically go down the drain and might default. But with Media independent, it is not easy for PMLN to do excessive corruption, and that means 12 percent devaluation was too excessive, especially when Rupee has already devalued under corrupt PPP government, from ~Rs 60 to a dollar in early 2008 to Rs 97 to a dollar in May 2013 … and that is ~60 percent devaluation on Rupee value in May 2008.
Rupee devaluation from Jan 2008 to Dec 2013:
Being fair to PPP government, rupee devalued to Rs 80 a dollar by end of 2008, but since then (since Jan 2009) depreciation was modest, as rupee only lost its value by 20 percent over four and half year. It went from Rs 80 to a dollar in Jan 2009 to Rs 97 a dollar in May 2013, or lost its value ~21 percent in around four and half year. Chart below is rupee value from Jan 2009 to present.
I don't think devaluation was due to unnecessary worries. Ishaaq daar printed bills to pay off IMF installments + paying lump sum the circular debt. They printed far more in mere 6 months as compared to what PPP government printed in one full year. This act compounded with SBP buying huge amounts of foreign currency from the market triggered the rapid downfall of rupee. Earlier, in order to stem the downfall,SBP was ordered to inject some money back to the market. this resulted in some revaluation but downfall continued after a few days. Then ishaq dar issued a couple of statements as I highlighted in the OP and revaluation of rupee began but I couldn't understand what is really going on. The government did not lay out any road map for this and Ishaq dar is no genius like Hjalmar Schacht. So I am confused about the revaluation as facts are completely supporting the opposite according to the article mentioned in my last post.
