A weaker rupee would help the economy: World Bank

Experts believe that rupee devaluation is inevitable, imposing regulatory duties will not help

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LAHORE: Recent World Bank analysis stated that a weaker Pakistani rupee would help external balances with limited economic costs.

The recent analysis outlines that there is a significant correlation between the Real Effective Exchange Rate (REER) and exports in the medium to long-term. A flexible Pakistani rupee would allow narrowing the current trade deficit. A weaker currency is not the prime choice for policymakers due to its short-term effect on consumption and the rise in inflation, however analysis carried out by World Bank, State Bank of Pakistan and other institutions suggest that a moderate increase in inflation and a 0manageable increase in debt financing are out shadowed by the overall impact of the moderate depreciation on growth, which is likely to be positive.

Profit recently reported that State Bank of Pakistan Deputy Governor Jameel Ahmad, in an interview with Bloomberg, said that the widening of trade and current account deficit are not something to be worried about as Pakistan’s exports are rising and imports are being constrained.

Pakistan’s current account deficit has spiked up more than two times touching $ 3.6 billion as of September 30, and foreign exchange reserves have declined 17 per cent this year, which led to rumours of an imminent devaluation of the rupee.

Senior economist at Standard Chartered Plc Bilal Khan said foreign investors would be worried over how the government intends to finance the widening current account deficit. Khan added, “We have not seen any policy response to the issues, we have seen regulatory duties imposed or increased to curtail the current account deficit, we have not seen the orthodox macro response.”

Various experts believe that the devaluation of the rupee is unavoidable considering Pakistan’s economic imbalances. This follows the call of International Monetary Fund to the SBP for loosening its grip on currency and to permit more freedom.

Ahmad disregarded opinions that rupee was overvalued and maintained the currency was at the right level and dependent on market forces.

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