Rupee recovery

There was finally some good economic news this week, as the official figures for the trade deficit saw it shrink by almost half in July, coming down to $2

6 billion, after the government’s aggressive clampdown on imports and other dollar outflows

The reduction gives the government some breathing room and provides vindication for the much-maligned finance minister, Miftah Ismail, who has been on the receiving end of harsh criticism, even from his PML-N comrades, for some of his tougher economic decisions

Analysts also said that IMF may also take a more accommodating tone once it sees that the government’s policies are working

IMF’s country representative actually noted on Tuesday that Pakistan has completed all tasks required before the IMF’s loan review, which also increased investor confidence that default is off the cards, at least for now

Meanwhile, the rupee also staged a recovery against the dollar, gaining about Rs10, or over 4$, on the back of the same new confidence, although some analysts noted that currency speculators who had been hoarding dollars were now in the middle of a fire sale as their expectations of a further decline amid default risks had been dashed

However, the influence of speculators is evident from the recent State Bank of Pakistan notification that monitoring of foreign exchange companies and banks has been increased in response to the high margin between the interbank and open market rates

However, it was not all good news

Along with the 38% decline in imports, exports were also down by 31%

Also, some analysts feel the credit for the fall in imports should go to the State Bank due to its enhanced vetting of letters of credit and enforcement of import quotas

Still, bringing the overall deficit under control is in itself an achievement, as the previous PTI government seemed unable to control it, even before fuel prices skyrocketed

While an ideal situation would have seen exports rise, ever so slightly, at this point, balancing the books remains the priority

Published in The Express Tribune, August 5th, 2022

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Date:06-Aug-2022 Reference:View Original Link