The devaluation of economy

What is behind the devaluation of Pakistani currency? What are its effects on our economy?

The Pakistani currency has experienced a worst fall against the US dollar ever in the history of Rs 143 per Dollar. The rupee has lost about 35 percent since the first devaluation in Dec 2017.

PM Imran Khan on the devaluation of currency said: “The State Bank of Pakistan did not inform the govt before the devaluing the rupee. The govt is now working on the mechanism to ensure this does not happened in the future.’’

The of SBP explained the reason for devaluation of currency: “The exchange rate generally move in demand and supply in market and the key reason behind the recent devaluation was the last fiscal year’s $19billion current account deficit.”

The exchange companies of Pakistan has blamed Pakistani media and loose border control for the declining value of Pakistani currency in open currency market. They have demanded positive role of media and strong border control in order to stop the currency from further devaluation or depreciation. The negative impacts of declining value of currency are evident on all the sectors of economy.

Devaluation of currency is the major cause of inflation in Pakistan. Inflation is so high that it can be stated as hyper inflation. This inflation is responsible for the increase in prices of Pakistan real estate. On the other hand the employment level is also at lowest end which is worsening the buying power of the people.

The devaluation of currency increases the external debit and liabilities of the economy. For every further 1% devaluation the national debit will climb up by approximately Rs. 125 billion. It discourages the investment and negatively effects the export industry of the country by making the exports cheaper for foreigners. It makes the imported goods expensive for domestic consumers which discourages the imports. It has also negative effects on social welfare which depends upon real GDP and rste of unemployment.

The govt and SBP should regulate their policies to bring stability in Pakistani currency and stop it from devaluation. They should devise stringent plan and effective monitory policy to curb inflation and devaluation of currency from Pakistan.

Anam Naz

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