While speaking to Asad Ejaz Butt on Naya Daur TV, Dr Aqdas Afzal, an economist associated with Habib University, Karachi suggested that bringing Ishaq Dar back as the
Finance Minister isn’t a bad idea after all.
Moving to a market based exchange rate is useful from efficiency and optimality perspectives, the imperfection of markets has tended to expand disparities between Pakistans imports and exports and incentivises speculative trading of the dollar.
Therefore, while adhering to market principles, the government needs to put in place strong measures to control further devaluation of the rupee against the dollar, said Dr Afzal.
In a span of less than a week, the rupee has regained around 4-5% ground against the dollar which can be credited purely to market sentiment that has improved significantly with investors eyeing a rupee resurgence in expectation of foreign exchange focused reforms that Ishaq Dar is likely to implement.
While the sentiment would continue in the short term and Pakistan could move closer to its REER, it would be difficult to put permanent brakes on the dollar unless Pakistans structural rigidities towards creating a sustainable exporting ecosystem are effectively removed.
In that respect, the change in the finance ministry could at least ensure improved economic governance and that Pakistan moves closer to its REER which is significantly below the current market price of the dollar.
Dr Afzal also pointed to the relevance of elections in Brazil, a country that has also suffered from procyclical movements of the economy and boom and bust cycles. Political instability has put brakes on the Brazilian growth which until the start of the last decade was celebrated for phenomenal economic achievements but started to crumble after being hit by a commodity crisis. The Brazilian case can be used to draw many parallels with Pakistan.
https://www.youtube.com/watch?v=4kG2QuaGAGE
Finance Minister isn’t a bad idea after all.
Moving to a market based exchange rate is useful from efficiency and optimality perspectives, the imperfection of markets has tended to expand disparities between Pakistans imports and exports and incentivises speculative trading of the dollar.
Therefore, while adhering to market principles, the government needs to put in place strong measures to control further devaluation of the rupee against the dollar, said Dr Afzal.
In a span of less than a week, the rupee has regained around 4-5% ground against the dollar which can be credited purely to market sentiment that has improved significantly with investors eyeing a rupee resurgence in expectation of foreign exchange focused reforms that Ishaq Dar is likely to implement.
While the sentiment would continue in the short term and Pakistan could move closer to its REER, it would be difficult to put permanent brakes on the dollar unless Pakistans structural rigidities towards creating a sustainable exporting ecosystem are effectively removed.
In that respect, the change in the finance ministry could at least ensure improved economic governance and that Pakistan moves closer to its REER which is significantly below the current market price of the dollar.
Dr Afzal also pointed to the relevance of elections in Brazil, a country that has also suffered from procyclical movements of the economy and boom and bust cycles. Political instability has put brakes on the Brazilian growth which until the start of the last decade was celebrated for phenomenal economic achievements but started to crumble after being hit by a commodity crisis. The Brazilian case can be used to draw many parallels with Pakistan.
https://www.youtube.com/watch?v=4kG2QuaGAGE