THE stability of a country’s currency depends on the strength of its economy. The currency is reflective of the confidence, or lack of it, of investors in the future of an economy. Given Pakistan’s economic woes stemming from resistance to carrying out tough but necessary financial and governance reforms, it is but natural that the exchange rate should remain under constant pressure. That the rupee has lost 58 per cent of its value — depreciating from 62 to 98 to a dollar — in the last four and a half years, is thus hardly surprising. The foreign exchange reserves with the central bank have fallen sharply below the import cover of less than three months. The external sector is under pressure and the balance of payments position continues to deteriorate on the rising current account gap and heavy debt payments. Even remittances of $48bn by overseas Pakistanis during this period have not propped up the rupee or caused the external sector to look up. Imagine what would have happened to the exchange rate had remittances not increased at the pace they have in all these years. We had a glimpse of this horror film in the latter half of 2008 just before the IMF bailed out the collapsing economy with its $11.3bn loan.

Volatility in exchange rate is not good for the economy. It triggers inflation at the expense of poorer segments of the population, eats into the modest savings of the middle class, scares away domestic and foreign investors as their capital costs rise and profits shrink, encourages ‘dollarisation’ of the economy as people lose faith in their own currency, and leads to the flight of capital. As a consequence, Pakistan has already become a net exporter of capital. Fears abound that we may see a sharp fall in remittances — which have so far kept the country going in the face of drying up foreign capital inflows — unless the economy is fixed. But are we ready to take tough decisions to reverse the process of economic degeneration? The country’s ruling elite hasn’t evinced any such inclination. At least, not so far.