Artificially maintaining high value of rupee damaged economy: Asad Umar

[shahbaz baig]

Artificially maintaining high value of rupee damaged economy: Asad Umar

Web Desk On Apr 5, 2019 Last updated Apr 5, 2019

KARACHI: Finance Minister Asad Umar on Friday refuted reports about talks with the International Monetary Fund (IMF) about the exchange rate target, ARY News reported.

Addressing a ceremony at Pakistan Stock Exchange in Karachi by video link from Islamabad, the finance minister said that artificially maintaining the rupee’s value at high level, has damaged the economy.

He said the State Bank of Pakistan has also stated that the value of rupee has been in equilibrium now and in tune with the market. He said in the past, rupee was kept artificially high.”

“We have not spoken to the International Monetary Fund regarding the exchange rate level,” he clarified.

He urged, “Rumours should not be spread and don’t waste money in buying dollars, invest it in the market.”

Umar said that the incumbent government has taken various difficult decisions in the larger interest of the country.

He said this government want to work according to the system worldwide and change will be introduced in phases.”

He also said that the work on the National Finance Commission has also been started.

The finance minister said,” We know the difficulties faced by the economy and practical steps needed for economic improvement.”

He said Pakistan has a smaller economy. The world market holds trillions of dollars, while the volume of Pakistan’s economy is around 300 billion dollars, he said.

The minister said, the Pakistani companies only meet the domestic needs. ” We have to get out of the traditional official thinking and to work with the world in tandem.

 

[CrazyZ]

Good points. The only way out of the hole is lower the currency value and boost exports. This needs to be sustained for a number of years.

 

[Khafee]

Good points. The only way out of the hole is lower the currency value and boost exports. This needs to be sustained for a number of years.

Lowering the currency, increasing the prices of petroleum products, are double edge swords, which need to be carefully used. Results can be disastrous.

 

[Mamadouso]

Why does Pakistan have such a weak manufacturing base? You are a country with a huge domestic market of 200 million, you should not need to import infant milk and tissue paper!

 

[Mangus Ortus Novem]

Devaluation is just one of many Policy Instruements which need to be deployed.

Important thing is the sequence of deployment of such instruements. Cost benefit analysis both in short term and long term.

Unless it becomes clear what kind of Political Economy Pak is moving towards... it is too early to say whether devaluaton would proved to be fully benefiticial instruement. Cost is high both politically and socially.

Important thing is to watch what Pak Fin Ministery does after this devaluation move.

 

[guest9999]

Here is some of what I wrote on another thread. Currency devaluation is a common tool for increasing exports. The question is, will Pakistan increase productivity to take advantage of this?

currency devaluation is a tool export-oriented countries use to make their exports more competitive. Take China for example,

"President Donald Trump has previously accused China of keeping its currency weak to make exports more competitive.
...
Beijing's lack of transparency and the recent weakness of the yuan continued to pose major challenges to achieving "more balanced trade", Treasury Secretary Steven Mnuchin said in a twice-yearly report on the foreign exchange policies of major US trading partners."

If the value of the rupee has fallen, then it's up to Pakistani industry to make up shortfall by increasing productivity and selling more quantity. The nation is supported by a few million expats sending remittances of ~ $20 Billion whereas 200 million people only export ~ $25 Billion. That speaks volumes on productivity in Pakistan. Also, Pakistani people need to get up, get to work, pay taxes. Shortcuts for making money, i.e- bribes and nepotism, lying about income/taxes - have brought Pakistan to its knees.

Imran Khan can get rid of Asad Umer, but that will NOT solve the current account & fiscal deficits problem you are facing now. The economic policies do not resolve solely around Asad Umer. There are other credible individuals, I consider to be gems and the best of PTI, like Hammad Azhar.

 

[CrazyZ]

Lowering the currency, increasing the prices of petroleum products, are double edge swords, which need to be carefully used. Results can be disastrous.

Pakistan must be forced to live within its means. There will be belt tightening for sure. The only way to boost energy from domestic hydro, coal, shale oil/gas, solar is to make imported energy expensive. The reality is that Pakistan really doesn't need to import energy.

The current round of devaluation might have made Pakistani labor cheaper, then ASEAN or other S asian countries. Low end manufacturers (especially from china but possibly others) may consider operations in Pakistan.

The juggling act is to make sure that the agricultural sector isn't exposed to high fertilizer prices.... Which could drive food inflation.

 

[guest9999]

The current round of devaluation might have made Pakistani labor cheaper, then ASEAN or other S asian countries. Low end manufacturers (especially from china but possibly others) may consider operations in Pakistan.

This is really key here. If investors come up to take advantage of lower costs, the results can be highly favorable. Currently we have many people unemployed struggling to buy items. Yes, inflation is there, but it's everywhere too. Difference is that other countries, people can cope due to their jobs, whereas jobs are in short supply in Pakistan. Inflation will be there, but if investment and increase in productivity results in more jobs being created, people will have purchasing power to cope.

 

[xyxmt]

Here is some of what I wrote on another thread. Currency devaluation is a common tool for increasing exports. The question is, will Pakistan increase productivity to take advantage of this?

they have not thought about that yet, for now they will export 1.5 tons of rice for same amount they were exporting 1.0 tons 3 months ago.

 

[CrazyZ]

they have not thought about that yet, for now they will export 1.5 tons of rice for same amount they were exporting 1.0 tons 3 months ago.

The value in dollar terms has not changed.

We need to move beyond simple agricultural exports to more value added manufacturing like garments. Low end manufacturing is not hard to set up. We need create secure free trade and no tax zones for foreign companies to encourage them to set up operations. East asian model.

 

[maithil]

If PKR valuation is the main problem, then let it fall to 200 at once and be done with it. And see if exports increase or not. A Finance minister ( especially some one who was called economic genius before elections) should be giving better explanation.

 

[Pakhtoon yum]

Yall jumping up and down for no reason, sometimes keep your currency down is a good thing. Ex Japan and its yen, it could increase its yen whenever it wants to but doesnt.

 

[Yaseen1]

I think manufacturing increase in Pakistan is challenge as most of our labor is sluggish and not used to of hard work and also quality control is problem here as people not follow standards for doing job properly so unless our culture of work is changed devaluation will not attract much investment for manufacturing

 

[Khafee]

I think manufacturing increase in Pakistan is challenge as most of our labor is sluggish and not used to of hard work and also quality control is problem here as people not follow standards for doing job properly so unless our culture of work is changed devaluation will not attract much investment for manufacturing

Carrot and stick, works everywhere my friend.

 

[H!TchHiker]

Devaluation doesn't work like this.......with double digit inflation and interest rates along with -ve LSM...
I do hope it works out and Asad umar accomplished the targets for the betterment of economy.