Not Just Falling Purchasing Power

Spearhead Analysis – 12.06.2018

By Farrukh Karamat
Senior Research Coordinator, Spearhead Research

Elections Vote 2018The day of June 11, 2018 proved to be a memorable one in Pakistan for all the wrong reasons:

  • The State bank of Pakistan (SBP) devalued the Pak Rupee for the third time since December 2017, faced by a rapidly declining economy and a strong possibility of needing support from the International Monetary Fund (IMF).
  • According to a press release issued by the Finance Division, petrol prices have been increased by Rs.4.26, HSD by Rs.6.55, SKO by Rs.4.46 and LDO by Rs.6.14 per liter, effective June 12, 2018.
  • Imran Khan has left for Umrah in a private Chartered flight along with a coterie of people, including Zulfi Bokhari, while his party faces infighting.
  • Nisar Ali Khan has decided to contest the elections as an independent candidate, and threatened the Sharif Brothers.
  • The Courts have allowed Pervaiz Musharraf to return to Pakistan without fear of arrest.
  • The legal counsel of Nawaz Sharif has declined to represent him in Court.

While the Pak Rupee has been termed as Asia’s worst performing currency in 2018 (Bloomberg), the SBP allowed a ‘managed’ further drop in the exchange rate of 3.7 per cent to Rs.119.84 per dollar. In the open market the Rupee tested the Rs.122 levels, with scarce availability. As per Bloomberg:

‘The devaluation comes amid a global emerging-market sell-off that has convinced Turkey, Indonesia and India to raise interest rates and Argentina to secure a US$50 Billion rescue program from the IMF to bolster investor confidence. The move may help the US$279 Billion South Asian economy lure capital and meet the IMF’s criterion for a bailout.’

Pakistan’s external balance of payments continues to worsen with a growing trade deficit. There is widespread speculation that the Rupee will fall to a level of Rs.125 in the very near future. Amid this doom and gloom Renaissance Capital, have stated that the devaluation, ‘makes Pakistan the “most competitive currency in South Asia… and should support the country’s export growth’.

At the same time the forex reserves continue to fall, the Debt continues to rise, and repayment obligations are increasing. Amid all this the SBP has raised the key policy rate to 6.5 per cent and has continued with the managed devaluation policy. This in turn translates into significantly higher prices for the consumers in an import based economy, and rising inflationary pressures.

As if the devaluation was not enough the interim government has raised the prices of petroleum products, further adding to the inflationary pressure in the country. This move would raise the prices of almost all basic use goods in the country, adding to the woes of the common man.

In the midst of these economic problems, the PTI appears to be unravelling with infighting over award of party tickets, and amid all this the PTI Chief has decided to proceed for Umrah in a Private Jet, with the controversial Zulfi Bokhari accompanying him. It is sad to see that while Imran Khan has been the champion against nepotism and corruption, his own standards are now starting to fall. Perhaps over-confident about an election win he has thrown caution to the wind. But PTI should understand that it is not over till it is over.

The PML-N stalwart, Ch. Nisar Ali Khan has decided to contest elections as an Independent. He has further threatened to expose the Sharifs. At the same time Pervaiz Musharraf has been allowed to return to Pakistan to contest the elections without fear of arrest. Significant developments in terms of the elections.

Nawaz Sharif appears to have been left high and dry as his legal counsel has expressed an inability to defend his client. Now the ex-PM has to find another lawyer, which could delay proceedings and create further problems.

Pakistan is facing serious challenges, the most significant being the declining economic situation. The politicians appear to be oblivious to this and continue to bicker over election tickets with the sole objective of returning to Parliament to basically do nothing. Amid all this the hapless people continue to be burdened with the excesses of an unconcerned government. Indeed, sad state of affairs.