We need foreign exchange to fix external-sector issues. That means more dollars, the currency we use to meet most of our external obligations. But dollars don’t grow on trees.

You need to make quick, realistic moves to get dollars when you need lots of them urgently. Critics of the PTI government say it did not show the guts in making such moves and here we are: the rupee lost 12.1 per cent value against the dollar during the first 100 plus days — between Aug 18 when Imran Khan became our prime minister and Nov 30 when the rupee went down 3.8pc in a single day.

Also on Nov 30, the State Bank of Pakistan (SBP) raised its key policy rate by 150 basis points to contain inflation, a product of several economic factors, most notably a weaker rupee.

The timing of the twin moves suggests Pakistan has finally started fulfilling some pre-conditions of a fresh IMF loan, though Finance Minister Asad Umar says he is in no hurry to get it. The government does not disagree with the Fund’s concerns on economic fundamentals, bankers and analysts say.

Also, it does not disagree with the Fund’s prescription for curing our ailing economy: let the overvalued rupee find its real market worth, minimise energy subsidies, reduce development and non-development expenses, hike interest rates — and choose economic stability over growth in the process.

Indicators suggest that no substantial easing of the foreign exchange crisis is in sight despite a downward trend in international oil prices

On Nov 30, the rupee closed at 139.06 to the dollar in the interbank market, down from 134 a day before — a depreciation of 3.8pc value. (Earlier on Oct 9, the rupee depreciated by 7.54pc). Bankers say this happened as the SBP watched silently the demand for dollars rising on imports and external debt payments. It was so intense and sudden that the dollar surged to Rs144 at one point on Nov 30.

On Aug 17, a day before Mr Khan took oath as prime minister, the rupee was at 124.05 to the dollar. So during his 100-plus days in government, the dollar has become dearer by Rs15 and the rupee has lost about 12.1pc of value to the greenback. In plainer words, importers are now paying Rs15 more on every single dollar of imports; the government is spending additional Rs15 on each dollar of external debt servicing; and exporters and beneficiaries of home remittances are getting additional Rs15 on each dollar.

The additional rupee cost of external debt servicing by the government means a larger fiscal deficit, costlier imports by export-oriented industries are going to somewhat neutralise the benefits of a weaker rupee and more expensive imports for local consumption mean higher inflation.

The government claims it is addressing structural issues of exports and its economic diplomacy has succeeded in winning foreign direct investment (FDI) promises from Japanese giant Suzuki and American bigwig Exxon. It also takes credit for growth in home remittances and perhaps rightly so.

But the problem is our exports, remittances and FDI — all the three combined — remain insufficient so far to foot the import bill. In four months of this fiscal year, the free-on-board value of imports (both goods and services) stood at $21.32 billion. Compare this with the value of exports of goods and services ($9.72bn), remittances ($7.42bn) and FDI ($600m) — or $17.74bn of the sum total of the three — and you realise the gravity of the foreign exchange crisis.

Until our current account deficit of $4.84bn in July-Oct against $5.07bn a year ago shrinks, nothing can save the rupee from falling, bankers and analysts say. Mr Umar rightly pointed out at a presser in Islamabad on Nov 30 that one reason for the ongoing rupee depreciation was that the PML-N government had kept it heavily overvalued.

That the rupee is still overvalued is a fact, though the IMF and the SBP differ on the extent of it. The latest rupee depreciation suggests Pakistan is on course for meeting a key IMF condition for lending.

By the way, even if the SBP disregards the IMF advice and makes an attempt to keep the rupee artificially stable, it does not have the required cushion for this purpose. The SBP’s foreign exchange reserves rose to $8.06bn on Nov 23 from $7.28bn a week earlier after $1bn of financial support from Saudi Arabia. But the reserves were still short of even two months of import cover.

External-sector indicators suggest that no substantial easing of the foreign exchange crisis is in sight in the short term despite a downward trend in international oil prices unless Saudi Arabia, China or the United Arab Emirates pumps in a few billions of dollars into our coffers or we get an IMF loan quickly.

Recent hikes in customs tariffs and the imposition of regulatory duties along with a weaker rupee and low international oil prices can reduce the import bill, providing a breather on the foreign exchange front. But that would take quite some time.

The SBP, however, hopes things will be better soon. In its latest monetary policy statement, it says: “Going forward, there is an expectation of receiving higher foreign exchange inflows from both private and official sources during the second half of 2018-19. Furthermore, recent bilateral arrangements, including the deferred oil payments facility (promised by Saudi Arabia), would also be available to the market from January 2019. The projected decrease in the current account deficit that could be further supported by recent decline in international oil prices will instil confidence in the foreign exchange market.”

Published in Dawn, The Business and Finance Weekly, December 3rd, 2018