BEIJING: Building sound economic fundamentals is the best way to allay acurrency crisis in Pakistan, economic experts said here on Monday.
Global Times quoting some Chinese experts said Pakistan economy haspotential to overcome its monetary crisis.
State Bank of Pakistan recently devalued the Pakistani rupee for the thirdtime in six months, stoking concerns that the country may have to go to theIMF for a bailout. Some experts expect the rupee to fall further in thecoming months given Pakistan’s dwindling foreign exchange reserves.
The country’s reserves dropped to $10.79 billion on May 11, an alarminglevel that is estimated to be insufficient to cover three months of tradedeficit. Although Pakistan’s economy is on an upswing, with growth of 5.6percent expected for 2018, the government has been blamed for not takingenough steps to curb imports and increase exports.
Some analysts have also criticized the multi-billion-dollar China-PakistanEconomic Corridor (CPEC) for failing to shore up Pakistan’s exports. ButPakistan’s currency woe isn’t the whole story. It is an oversimplificationto let the Pakistan government take full responsibility for the devaluationof the rupee.
Pakistan’s decision to devalue its currency came at the same time as manydeveloping countries have been hit by volatility in the foreign exchangemarket and external factors such as the strong US dollar. It is unrealisticto expect Pakistan to be unscathed by financial woe in the global markets.
While a stronger dollar benefits some economies, it hurts others,especially developing countries. Argentina’s peso has depreciated by about25 percent this year, while Turkey’s currency, the lira, has also suffereda bruising year, falling more than 15 percent against the US dollar in 2018.
Many other emerging economies such as Brazil, Indonesia, South Africa andIndia have also had a hard time with their currencies. We cannot rule outthe possibility that the crisis will swamp some emerging markets and affectother developing countries like China, where the yuan is also facingdepreciation pressure.
Some emerging countries have begun to act. Earlier this month, the ReserveBank of India hiked its benchmark repo rate by 25 basis points for thefirst time in four years.
China is also expected to opt for small interest rate increases in thecoming month. Central banks in developing countries need to enhancecoordination and collaboration to deal with the surging US dollar.
Besides monetary measures such as interest rate increases, the fundamentalsolution is to inject stronger internal impetus to develop the economythrough expanding both domestic and overseas demand and attractinginvestment. Emerging economies like Pakistan may continue to suffer a hardtime this year given the strong US dollar, but these countries should stickto the road they are on and try to attract foreign investment.