Pakistan’s Rate Race & Elections
Doors for external financing open up, signaling an improvement in the exchange rate and economic stability.
In December 2023, the real effective exchange rate rose to 98.9, marking a 0.6% increase from the previous month. Meanwhile, there was good news as the Rupee experienced a 9.64% rebound over the last four months. The exchange rate, or more specifically, the real effective exchange rate, is an indicator as well as a tool in a country’s trade dynamics. However, small-scale trends are often useless considering the impact of long-run factors on the exchange rate. For one, the recent appreciation of the Pak Rupee is owed to rollovers from UAE and speculations around the IMF tranche. Furthermore, Pakistan is merely reversing the depreciation done through deliberate devaluation a while ago. Hence, this is not the kind of appreciation we should be rejoicing over.
Many still hold the belief that devaluation makes a country’s exports more competitive, yet Pakistan’s trade deficit has not improved considerably. A primary reason for this is the composition of Pakistan’s trade baskets. For example, the country imports raw materials, machinery, and goods with inelastic demand. Our import demand not budging shows we're not getting better at saving energy and still rely heavily on imports. Similarly, the export basket consists of low-value goods that may not benefit from a price advantage alone. Therefore, we can conclude that Pakistan might be overusing devaluation policies.
In conclusion, Pakistan's low exchange rate isn't helping exports, but it is making imports and debt servicing more costly. By taking a broader perspective on this problem, we can see how fragmented Pakistan’s economic policies are. Unfortunately, this fragmentation can not be remedied by a council. The lack of economic manifestos in upcoming elections is saddening as well. This implies that Pakistan will continue to function on the same principles when in reality Pakistan needs more holistic policy-making because no matter how simple or manipulable economic tools seem, they are complex.
GRAPHIC
Israel’s continuous air, land, and sea attacks have destroyed about 70% of the Gaza Strip’s civilian facilities and infrastructure since October 7, 2023 citing the clear Israeli aim of implementing collective punishment and systematic genocide against the entire population and making the Strip, which has been under siege for over 17 years, uninhabitable. Israel is pushing hundreds of thousands of civilians towards mass forced displacement
The new year brings a financial challenge for Pakistan as the upcoming government needs funds amounting to 21% of GDP in 2024 to tackle the fiscal deficit. Unfortunately, the economic outlook for the period from July 2023 to June 2024 looks slow, with a projected growth of only 1.7%.
Pakistan is facing a growing access deficit, with 107 million people lacking electricity. The slow progress in achieving sustainable goals is evident, as solar and wind, comprising over 97% of renewable additions, take a backseat to Pakistan's focus on hydropower and local coal.
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About Us: Macro Pakistani is a data-driven research platform that aims to provide a basic understanding of Pakistan’s economy. If you have an interest in contemporary news but are currently overburdened with sensationalism and specialized vocabulary, we are the platform for you.
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