March 2010 April 2010 May 2010 June 2010 July 2010
August 2010
September 2010 October 2010
November 2010
December 2010
January 2011
February 2011 March 2011 April 2011 May 2011 June 2011 July 2011 August 2011 September 2011 October 2011 November 2011 December 2011 January 2012 February 2012 March 2012 April 2012 May 2012 June 2012 July 2012 August 2012 September 2012 October 2012 November 2012 December 2012 January 2013 February 2013 March 2013 April 2013 May 2013 June 2013 July 2013 August 2013 September 2013 October 2013 November 2013 December 2013 January 2014 February 2014 March 2014 April 2014 May 2014 June 2014 July 2014 August 2014 September 2014 October 2014 November 2014 December 2014 January 2015 February 2015 March 2015 April 2015 May 2015 June 2015 July 2015 August 2015 September 2015 October 2015 November 2015 December 2015 January 2016 February 2016 March 2016 April 2016 May 2016 June 2016 July 2016 August 2016 September 2016 October 2016 November 2016 December 2016 January 2017 February 2017 March 2017 April 2017 May 2017 June 2017 July 2017 August 2017 September 2017 October 2017 November 2017 December 2017 January 2018 February 2018 March 2018 April 2018 May 2018 June 2018 July 2018 August 2018 September 2018 October 2018 November 2018 December 2018 January 2019 February 2019 March 2019 April 2019 May 2019 June 2019 July 2019 August 2019 September 2019 October 2019 November 2019 December 2019 January 2020 February 2020 March 2020 April 2020 May 2020 June 2020 July 2020 August 2020 September 2020 October 2020 November 2020 December 2020 January 2021 February 2021 March 2021 April 2021 May 2021 June 2021 July 2021 August 2021 September 2021 October 2021 November 2021 December 2021 January 2022 February 2022 March 2022 April 2022 May 2022 June 2022 July 2022 August 2022 September 2022 October 2022 November 2022 December 2022 January 2023 February 2023 March 2023 April 2023 May 2023 June 2023 July 2023 August 2023 September 2023 October 2023 November 2023 December 2023 January 2024 February 2024 March 2024
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29
30
31
News Every Day |

In staring contest with IMF, Dar blinks first

1
In staring contest with IMF, Dar blinks first

If one was to pick the worst economic decisions in the history of economic decisions made by Pakistani policymakers, the Dar peg would easily be among the worst, given the disastrous economic consequences that it entails.

The consequences, which are already beginning to manifest, will significantly erode the purchasing power of all segments of the population — except the rent-seeking class, which continues to be protected by every policymaker and politician at the helm.

The global commodity supercycle

The year 2022 started with volatility both on the political and economic fronts. Globally, the commodity supercycle was peaking as a post-pandemic demand surge pulled up prices of commodities across the board.

Pakistan, being a massive commodity importer, continued to pay ever-increasing prices for commodities across the spectrum, whether it was petroleum products, or something as basic as edible oil, or pulses. Pakistan’s structural weakness remains its heavy dependence on the import of staple products — a problem that needs to be fixed, as it is already too late.

As the commodity supercycle kept gaining traction, political volatility in Islamabad took attention away from economic decisions that would affect the whole population. As those at the helm consider ‘being selfish’ a value, the decision to fix fuel prices seeded the perfect storm.

As the government changed following the vote of no confidence, the incoming policy makers did not take any corrective actions either, and continued the policy of fixed fuel prices, accumulating the costs that would have to be paid by the population of the country only a few months later.

Although some decisions were taken to expand the tax base, improve liquidity of foreign currency, and let the PKR depreciate to a more market-oriented level — potentially avoiding a sovereign default — since level-headed decisions are not welcome by the political elite, there was a change of guard, resulting in the emergence of the gentleman famous for obsessing with a fixed exchange rate.

Looking at a more macro picture, all economic problems of the country during the last many years can be linked to an obsession with maintaining arbitrary prices.

Read more: Return of the ‘Dar’ Ages

The narrative that enabled the return of the gentleman obsessed with a fixed exchange rate was another spiel of fixed exchange rate that envisaged the appreciation of more than 15 per cent of the Pak Rupee against the US dollar at a time when reserves were dwindling, and the country barely had any foreign currency to import even the most basic staples.

Such a strategy may have worked a few years back, wherein one could borrow dollars at much cheaper interest rates, given close to zero interest rates in developed markets, but a global monetary contraction changed this dynamic.

Head in the sand

Ironically, policy makers remained aloof of whatever was happening globally, and continued to operate from a place of ignorance, pushing the country over the edge, while eroding savings and purchasing power of the vast majority of the country’s population. This was an act of economic sabotage that is unparalleled — or maybe one can see many such events happen every few years as the musical chairs of geriatric policy makers continue unabated.

To enable the appreciation of the Pak Rupee against the US dollar, the central bank started throwing money at the problem, further dwindling precious reserves.

To ensure that a fixed exchange rate continued, certain administrative measures were introduced which resulted in a reduction in imports, which ultimately lead to a severe disruption in the supply chain of goods across the board, whether it was a basic staple, or a good designated for exports.

As supply chains were disrupted, there was contraction in economic output, which in turn led to lower tax collections on a relative basis, as growth in tax collection could not even mimic inflation. A supply shortage further fuelled inflation which was already elevated due to the after-effects of the commodity supercycle.

The policy of an arbitrarily fixed exchange rate lasted for more than a few months, resulting in divergence between the exchange rate recognised by the central bank, such as the inter-bank rate, and the actual market rate, at which transactions were happening.

The spread between the hypothetical rate that the central bank kept close to its heart and published daily, and the actual rate at which transactions were happening was more than 15pc at one point.

This is potentially the highest spread between inter-bank rate, and open market rate that the economy has seen in this century. Due to such massive divergence, remittance flows were redirected to informal channels, which further dried up foreign currency inflows, resulting in more liquidity problems.

Read more: The fault in our Dar(s)

All this while, a coterie of rent-seeking supporters continued to support a fixed exchange rate, even though that spelled disaster for the economy.

As the economy readjusts to a new equilibrium exchange rate, fuel prices will be the first to incorporate the impact, followed by other imported goods, thereby further bumping up inflation.

Over the next few weeks, the second-round effects of inflation will start taking root, as goods that use fuel and other imported goods are also repriced, followed by an increase in wages in nominal terms to compensate for it all.

The upcoming inflationary spiral is going to push inflation to more than 30pc in the next few months, and may peak at just about the time when general elections are scheduled to be held. Decision making devoid of any data, and understanding of global macro trends, ought to end up in a disaster — as has happened in this case.

The gentleman obsessed with a fixed exchange rate proudly stated once that he had been at the forefront of many IMF programmes. Someone ought to tell him that there is no pride in this, and that they can add another feather to their cap, as Pakistan returns to the IMF yet again.

This won’t be the last time either, as we may need yet another programme, and a liquidity injection as soon as the new government takes charge.

The geriatric musical chairs don’t seem to be ending anytime soon, as we continue to work with prescriptions of the same people who have been at the helm of disastrous decisions over the last 30 years (or more).

Арцах

Топливному компромиссу между Украиной и Азербайджаном пришел конец?

I was diagnosed with cancer aged 39… you are never too rich, too famous or too young, says Dr Philippa Kaye

Top 5 Websites to Watch FREE Movies - TV Shows (No Sign up!)

The 10 Intense New Action Movies on Netflix That Left Me on the Edge of My Seat!

Top 10 Emmanuelle Seigner Movies

Ria.city






Read also

Abiodun promises to prioritise road construction

'The program is not ready': Oklahoma provider raises concerns with SoonerSelect

UN court orders Israel to let food into Gaza

News, articles, comments, with a minute-by-minute update, now on Today24.pro

News Every Day

Top 10 Emmanuelle Seigner Movies

Today24.pro — latest news 24/7. You can add your news instantly now — here


News Every Day

I was diagnosed with cancer aged 39… you are never too rich, too famous or too young, says Dr Philippa Kaye



Sports today


Новости тенниса
Дарья Касаткина

Теннисистка Касаткина отреагировала на высказывания Винер о россиянах



Спорт в России и мире
Москва

GeekVape в сотрудничестве с Absolute Racing выиграла чемпионат в категории GT3



All sports news today





Sports in Russia today

Москва

«Радио Зенит» – информационный партнер форума «Мы вместе. Спорт»


Новости России

Game News

Пробный запуск вампирского градостроя Vampire Legacy: City Builder


Russian.city


Дарья Касаткина

«Бомж» Дарья передает всем привет»: Касаткина ответила на слова Винер


Губернаторы России
Арцах

Грязная азербайджанская пропаганда на трагедии россиян


Metaratings: "Спартак" может уволить Абаскаля по ходу сезона, клуб ищет тренера

Пассажир не успел войти в поезд и разбил стекло вагона на станции «Киевская»

Шапки женские вязаные на Wildberries, 2024 — новый цвет от 392 руб. (модель 466)

Майское тепло придет в Москву на следующей неделе


Розенбаум исполнил «Вечернюю застольную» в память о жертвах теракта в «Крокусе»

Амигуруми: как связать Фредди Меркьюри крючком (узор и схема)

«Мое сердце у твоих ног»: Сергей Шнуров признался в симпатии одной из участниц «Новой Фабрики звезд»

Концерт группы «Пикник» в Петербурге начался с минуты молчания о жертвах теракта


Рыбакина о том, что не играла в Индиан-Уэллс из-за болезни: «К сожалению, восстановление заняло много времени»

Александрова обыграла первую ракетку мира на турнире WTA

Хачанов: хочу вернуться в топ-10 ATP

Азаренко вышла в полуфинал турнира WTA-1000 в Майами



Шапки женские вязаные на Wildberries, 2024 — новый цвет от 392 руб. (модель 466)

«Радио Зенит» – информационный партнер форума «Мы вместе. Спорт»

Пассажир рейса Москва — Пермь попал в реанимацию

Архитектурные доминанты округов Москвы


Грязная азербайджанская пропаганда на трагедии россиян

Творческая встреча с искателем приключений состоится в Симферополе

Фильм о пришельцах снятый на деньги мафии

Новые цены на жилье утвердили в России


Жительница Нижнего Новгорода убила мужа и попыталась воскресить его святой водой

БАМ подорожал на триллион: Москва услышала Кожемяко

Архитектурные доминанты округов Москвы

Будут искать жениха: В зоопарке Москвы рассказали, когда панда Катюша покинет Россию



Путин в России и мире






Персональные новости Russian.city
Владимир Спиваков

Концерт благотворительного фонда Владимира Спивакова прошел в Солнечногорске



News Every Day

The 10 Intense New Action Movies on Netflix That Left Me on the Edge of My Seat!




Friends of Today24

Музыкальные новости

Персональные новости