The rupee has fallen sharply against the dollar with the decline in the foreign exchange reserves, widening fiscal and current account deficits and surging inflation.

The flight of capital--investments ineuros and the real estate in UAE-- political uncertainties, economic stress etc have also added to the external sector woes. In time of financial distress, foot-loose capital flies abroad in search of better pastures.

With Mr Asif Zardari becoming the president of Pakistan, there are hopes that political stability will return to the country. Strengthened, the PPP government is likely to focus on urgent economic issues.

However, steps so far taken by the government to secure the help of the international community to withstand the financial stress have met with very limited success. Saudi Arabia has provided some balance of payment support and credit for fertiliser imports. About 5-6 billion oil facility is also being negotiated with Riyadh. The amount would perhaps depend on the oil prices which are coming down because of the slow down in the industrialised states. Recently, China gave $500 million balance of payments support. Both China and oil-producing Arab countries have excess funds which the government is trying to tap. Reports are that the government would seek Chinese investment in a number of energy projects. It is also trying to attract Arab investment in agriculture sector.

The government is also reported to have got a letter of comfort from the IMF to facilitate borrowings from the World Bank and the Asian Development Bank. It would facilitate a loan of $500 million by Asian Development Bank immediately followed by other disbursements by IFIs.

Pakistan is not seeking IMF bail out while indications are there to show that the IMF wants to offer its assistance but its conditionalities, as usual, will be rigid and irksome for any democratic and representative government. Soon after taking oath of office, President Asif Zardari said the PPP-led government would not go to the IMF.. Meanwhile, the government has taken a series of measures to reduce its fiscal deficit, including a huge cut in development spending and subsidies, to qualify for external assistance.

While liberal external assistance can provide relief for sometime, the problem of imbalances in the economy are too deep-seated to be tackled with external capital and financial inflows alone. Of course, the rupee may be stabilised temporarily. What is needed is to work for removal of the structural imbalances.

The problem is that the moment the foreign exchange situation improves we get too excited and maintain we are out of woods and thereafter it will be plain sailing. But the euphoria is usually short-lived as we spend the money aimlessly and lavishly.

The home remittances hit their peak at $6.4 billion last year. Similarly, the foreign investment also reached its peak at over $5.1billion despite political turmoil. These are very positive signs but political uncertainties made a hash of things and what was a bright picture turned into grey. The government started to remedy the situation by imposing heavy customs duties on luxuries to restrict imports. Now it has decided to have two holidays a week and close the petrol pumps on Fridays.

In the past experiments with two holidays a week did not help reduce consumption of electricity. Now it is to be seen whether the people store up plenty of petrol on Thursdays and frustrate the government’s objective..

Meanwhile, more and more luxury cars are being imported which consume vast quantities of high grade petrol. This lavish policy and economising on petrol don’t go together.

We have not tried to spend much of the home remittances or channel the foreign investment flows to diversify our production base.

The government needs to encourage domestic savings, investment production and exports. There is so much of excess money in the domestic market which is going intospeculative investment in stocks and commodities and flowing into real estate abroad which could be harnessed for productive pursuits. The first priority should go to the development of agriculture that provides raw materials and markets for manufacturing and food security to the people.

The rupee was steady in a period of a falling dollar. It was not a reflection of the strength of the rupee as much as the weakness of the dollar. Today the world economy is under severe stressand its impact felt in Pakistan particularly in the area of food and now declining oil price inflation. The rupee is under pressure and must be saved from further depreciation.