Pakistan’s steep currency depreciation over the last four decades has not helped exports because the rupee has never been managed in a consistent and predictable way.
This warning and analysis has come from Dr Ali Hasanain, Associate Professor of Economics at LUMS, in a long thread posted on X (formerly Twitter).
He stated that the popular belief that the dollar jumped from Rs. 100 to Rs. 300 but exports did not increase is built on a misunderstanding. He argued that while the rupee has depreciated sharply in nominal terms, the picture looks very different after adjusting for inflation in Pakistan and its trading partners.
Exchange rate comparisons must account for inflation at home and in trade partner countries.
That is why economists track the Real Effective Exchange Rate, which measures the value of the rupee against trading partners after adjusting for inflation and relative price changes.
The dollar was priced at Rs. 3.30 in 1947. It rose to Rs. 9.90 in 1980. It crossed Rs. 21 in 1990. It stood near Rs. 52 to Rs. 58 in 2000. It averaged Rs. 84 in 2010.
It reached Rs. 154 in 2020. It touched almost Rs. 300 in 2023 before official intervention. However, exports as a share of GDP fell.
They peaked at almost seventeen point three percent in 1992 and dropped to eight point two percent in 2017. They are only near ten percent today.
According to Dr Hasanain this does not mean the exchange rate policy failed. It means Pakistan never pursued a competitive currency policy in a steady manner.
The rupee was repeatedly kept stronger than economic fundamentals allowed. When foreign reserves thinned and global lenders stepped in, the rupee crashed suddenly.
The average depreciation over four decades equals 0.6% per month. But instead of small planned adjustments, Pakistan experienced violent swings.
Sudden falls of five percent within a month occurred repeatedly. Calm periods, such as 2000 to 2007 and 2013 to 2017, were followed by deep instability.
Volatility from 2018 to 2023 reached historic highs. The current period of calm since 2023 looks similar to phases that later ended in major pressure on the rupee.
Dr Hasanain explained that a softer rupee can encourage exports if businesses can plan around it for years. Sudden crashes do the opposite by destroying confidence and increasing uncertainty.
He stressed that a competitive exchange rate must work together with industrial support, energy reforms, and easier business procedures.
Pakistan should not wait for everything to improve before correcting the currency. But export gains would be stronger if these reforms move together, he added.
The economist concluded that the rupee did not boost exports because it was not used as a long-term tool to shape incentives, but was allowed to fall only at the point of crisis when the music stopped.
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Much Ado About Nothing.
Simple Baat Karo. Until the Governance & Taxation Improves Along With Energy Issues, No One will Produce Anything in Pakistan. It’s cheaper to import higher quality milk to Pakistan that it is to produce locally i the 5th largest milk production nation of the world. It’s cheaper to make Goods In China and import them to Pakistan.
Pakistan produces nothing and the govt (ungotha chap that only understands dallas) can’t do anything.
I started using US dollar from 1987,1 US dollar was equal to 16 rupees, so I can clearly understand the the devaluation of our currency because of continuous failure of economic policies only because of “CORRUPTION” which is by definition is the mother of all negativities such as non-merit political recruitments and promotions in key departments of non competent as well non committed persons on key positions, therefore no “ACCOUNTABILITY”, this all ultimately lead to continuous devaluation of not only currency but also deterioration in all segments of life in our society.
This devaluation was the crime committed by those responsible in state against the nation.
It is same like a crime committed by state when things were nationalized in seventies.
You needs to devalue your cruncy when your production is meeting your local needs and you have surplus after local demand is fulfilled.
Then you are exporting your surplus.
Then you feel you still have more production capacity and you can produce more and easy way to market more surplus products is to lower little bit of cruncy rates then product will be cheaper to overseas coustomers and will compete better and will be sold easily and bring us foreign exchange.
But behind this devaluation the conspiracy was to make local products cheap to overseas customers through exports but making it difficult for local public to buy it.
This is bcz rates of energy needed to produce anything also went many times high making people more to spend on energy and shelter but little is left for them to spend on food, groceries and other necessities of life.
This develuation was intended to bring poverty in the nation, making people and children mal nourished and sick.
Constitution gives solution to this problem to invoke article six against all those who willfully did or do devaluation of cruncy.
Accountability brings prosperity.
Alhamdolilah
This develuation with not exploring our own resources but keep depending upon exports then keep the interest rates high superimposed the negative impact of develuation and resultantly industry was closed or moved causes more unemployment resulting in more poverty more sickness more crime.
Allah knows best
For head of economics in LUMS, he is mincing his words alot.
Yeah it was supposed to fail when you have prior like Isham dar managing the currency which caused unprecedented damage to the economy.
He turned us into an import driven economy back in 2010 when currency passed the 100 threshold. It’s been nothing but a rough ride.
And what exports ? We don’t create anything. You think you can sell fruits and veggies and expect to take on Mexico and India ? Lol
Dr hasnain is correct but he knows he cannot say more
And we are still suffering under the same people who landed us in this mess.
I love the fact that this platform stopped anyone commenting for a full day
Censorship is truly strong here 😆
Except that his theory doesn’t abide by porter diamonds. Pakistani industry is under developed and under regulated. Needs a more micro policy shift catered to per sector basis.