“Depreciation of the currency by just one rupee against a US dollar enhances the public debt by Rs 45 billion,” a senior official told The News. According to him, Pakistan’s national debt currently stands at Rs 5,899 billion, including Rs 2,693 billion ($45 billion) external debt.
The rupee has been losing its value against the dollar since quite some time while the government remained a silent spectator till the damage was completely done. While the rupee-dollar exchange rate continued to hover at 61:1 earlier this year, it was at 84:1 in the open market on Thursday.
Newly appointed Finance Adviser Shaukat Tareen’s recent statement about the exchange rate contained contradictions. He said the banks’ cartel had manipulated the fall of rupee, but in the same breath he said the previous government had artificially maintained the stability of the rupee against the dollar. However, a major shock came when the exchange rate (80:1) imposed by the banks’ cartel got the official stamp of approval as the State Bank of Pakistan provided $100 million to the foreign exchange companies at the rate of Rs 80 for one dollar.
During the previous government, the rupee-dollar conversion rate was determined in the inter-bank. Whatever the reason, the dollar remained available for around Rs 60 for several years before the present unprecedented downslide.
The official said that the massive jump in the national debt because of the sharp rupee depreciation would colossally affect the budget as interest payments would go up. The burden of debt servicing would also tremendously increase, he said.
He said the plunge in the rupee would also increase inflation to around 25 per cent. The government and private imports will become enormously dear for the Pakistani rupee, he said, adding there will be a mammoth impact on Pakistan’s oil import bill of around $12 billion. However, the drastic drop of rupee will benefit a large number of Pakistani expatriates, who remit their savings to their homes in dollars.
The official referred to the general principle of supply and demand and said when dollar was in short supply in the market; it gained a lot against the rupee. However, the situation did not improve and the rupee continues to be unstable even after the State Bank made available dollars to the money changers, he said.
The confidence of the people has shattered and the downslide has caused the transfer of dollars abroad because of uncertainty he further said. Further, dollar inflows brought the rupee down and appreciated the dollar. Pakistan’s foreign exchange reserves are down to around $8 billion and there has been no considerable injection of dollar in the near past, he added.
Source: The News, 20/10/2008