After allowing the rupee to find its real market value last week, it depreciated close to 17% in three trading sessions. Such rapid depreciation was a certainty once the cap was removed, owing to the pressure being built up in the currency market since limits were placed on the dollar-rupee parity by the SBP and federal government. It is largely expected that the rupee will continue to slide, perhaps in a relatively more gradual fashion, in the coming weeks. The move has also necessitated a record hike of Rs35 a litre in petrol prices and a Rs18 rise in light diesel oil and kerosene. Fuel prices will rise next month as well to factor in the falling rupee and rising global prices. At the center of this monumental mess is the PML(N), that under the banner of the PDM ousted the PTI government on the basis of economic mismanagement, vowing to bring stability and prosperity. That the reins of the economy were placed firmly in the hands of Finance Minister Ishaq Dar back in September last year after being abruptly snatched from Miftah Ismail, who had at least restarted the stalled IMF programme, is a testament to the lack of planning and innovativeness being introduced to solve a complex and precarious problem. By trying the same old tricks of artificially overvaluing the rupee while maintaining low energy prices, Mr Dar only made matters worse. The situation was exacerbated when he began publicly berating the IMF and going against all conditions the latter had put forward to release a further tranches of the Extended Fund Facility. All those conditions, and then some, will now have to be met to ensure that the ongoing ninth review, that the Fund only agreed to hold in Pakistan only when the rupee cap was removed, is passed successfully.
What lies ahead for the households and businesses, is an unpleasant reality: record high inflation in a dysfunctional slow economy. Lower income groups will suffer the most while middle class families will have to make significant lifestyle changes to make ends meet. As consumption habits change, businesses too will feel the pinch of reduced demand along with higher cost of doing business. It is high time that serious thought is given to how the country got to where it is, who is responsible and what needs to be done to address it. Unfortunately, political ambitions of individuals, institutions and families continue to take precedence over what is better for country as a whole and its citizenry.
