Pak Economic Affairs : CURRENCY RATE

Lecture by sir fareed Ullah khan

Devaluation of currency :
2 types :
1.Floating
2.Fixed
Floating: Market forces decide
its price through demand and
supply .
Fixed: Price is fixed by state
Communist economy , Fixed
prices.
Communist economy , Fixed
prices.
The currency is originaly
floating but indirectly
controlled by state.
Example: State Bank float
dollars in private market due to
which there is balance in
demand and supply
phenomenona
Topic: The rupee in PAK is
persistently and tremendously
depreciating in last 2 decades.
1$ vs 37 PKR in 2000
1$ vs 62PKR in 2008
2013 :1$ vs 84 PKr
2014 : 1$ vs 100 PkR
From 103 to 127 against on
dollar
may, june , july
Dec 2018 137 pkr vs 1$
July 2020 167 PKR 1$
The Gap between demand and
Supply Phenomenon.
Availability of dollar has been
lower ,but how ?
bcz of dollar flight from
country.
2- debt servicing
3- smuggling of dollar
1- Trade deficit
4- Withholding of dollar by
currency traders.
Results into shortage of
dollar.
Price of rupee is primarily
condiotioned against dollar
1- Less availability of dollar
The printing of paper
currency was conditioned
against Gold.
1970 onwards majority of
the world countries have
to reserve dollars.
 PKR is conditioned against
5 currencies.
DOLLAR
Euro
Yen
Rayal
Pound
Quantitative easing:
Whenever the state bank
prints more notes against
the less reserves(5) it has
to depreciate currency.
2 Major Reason :
1- Demand and Supply
Phenomenon
2- Quantitative Ease.
In 2011 521 billion and in
2013 648 billion rupees
3- Artificial Control of the
rupee: In 2018 artificial
control on the price of rupee
was lifted up that resulted
into the depreciation of
rupee.
From 2018 and before the
policy was of artificial
control.
How: Dollar acquired in form
of loan from external
sources, and the state bank
would release that dollar into
commercial banks
Commerial Banks = Private
Market.
Govt. succeeded in stabilizing
the price artificially but it had
a huge negative impact.
Impact:
Volume of loan
tremendously increased.
Govt. decided not acquire
more loan and no more
dollars into the market.
Due to which short fall of
dollar came.
state bank withhold dollar
And rupees was week.
Impact:
Price Hike:
1.Imported products were
more expensive specially oil,
gas , pulses, edible oil and
long list.
2- Not only foreign products
got expensive but also
domestic products were
expensive bcz raw materials
were supposed to be
imported. e.g for steel we
import raw material like oil
and gas
3- Burden of general
consumer.
How: Increase in the price of
electricity, kitchen expense
increased
2nd Impact: Volume of loan
tremendously increased
without acquiring any new
loan.
It was just because of
depreciation.
1 billion dollar by 155 billion
PKR.
but in 2018 for 1 billion
dollar we used to spend 103
billion PKR.
But Depriciation is not
always negative.
The export of the country
increase and import of the
country decreases .
Local product is
manufactured by rupee
which is cheap and will be
 sold at hugh price in foreign
market.
But foreign product will
reach Pakistani market at
high price ( due to high
price of dollar).
Manufactured in rupee and
sold in dollar.
Trade deficit:(‫تجارتی خسارہ‬
Fiscal 1st july to 31st june.
 ln Fiscal year 2018-19 the
trade deficit was above 31
billion dollar
Imports 52+ billion dollars ,
exports 21 billion dollars
In 2017-18 trade deficit was
more than 35 billion dollar
Exports 22 billion and 58
billion dollar imports
2016-17 its was 35 billion
dollar+2015-16 almost 35
billion dollar and go on.
Reasons for the huge trade
deficit:
1- Declining production
sector like industry
From 2007-18 was the dark
period for the industrial
sector of PAK Bcz more than
35% mega textile shifted
abroad.
2-Industrialists closed their
own industry and shifted
towards real estate.
3- Karachi based industry
closed their industry and came
to imports business or real
estate.
Agricultural Decline:
25% of our cotton need we
import.Commerce and trade
industry we import from
central asia.Pak remained self
sufficient but now we imports.
major exporters of fruits and
veges but now we import.
Reasons: water shortage,
floods, declining canal system,
no state policy to support
farmers.
In 2013 exports were above 24
billion dollars.
Increase in imports .bcz
increase in demand.
substantial population growth.
1998 census 140 million
population.2017 census 220
million.Popoulation Increased ,
demand increased,.Imports
increased bcz local industry was
unable to fulfil the demands.
Increase in the import of CPEC
related machineary from 2015
onwards
How; In fiscal year 2012-13
over all imports 46 BN dollars
2017-18 imports were well
above 58 bn dollars
TBMs: Tunnel boring machines
were imported.
High Altitude Kranes were
imported.Coal based and wind
based projects machines
imports solar and hydro based ,
machines imports.

Trade deficit 22 bn dollar 2012-

13
Exports 24 Imprts 46 bn dollar
in 2018 trade deficit was nearly
36 bn dollar.
below 22 exporst above 58
imports
Impact of the trade Deficit
Massive Dollar Flight from the
country.
Deficit means dollar moved out
of country.
2nd Impact: Depletion of
Foreign reserves.
3rd Impact:
Acquire Loan.
Solution
Adopt Protectionist measures
- Higher taxes on the import of
foreign products -
The would get expensive -
Imports would get discouraged.
2017 onwards we havily taxed
3000+ foreign products.
2018-19 reduced from 36 bn
dollar to 31 bn dollar.
2019-20 trade deficit was 27 bn
dollar.

5 bn dollar decrease.
2020-21 target is trade deficit
would be 25 bn dollar It means
we adopted protectionist policy
which is temporary solution.
Permanent Solution: Increase
Production Base.
July 2020 - march 2021 exports
2 bn dollar each month on
average.
Services: 4-5 bn dollars exports.
Exports would jump to 27-28
bn dollar which is a huge
jump.But it need to
expand.moreThrough
Agricultural base
LOAN as Problem:
In 2008 total volume of loan
was 6 trillion pkr.out of which
foreign loan was 37 bn dollar.
In 2013 total loan above 12 tn
PKR.Foreign loan was 62 bn
dollars
in 2018 total loan 30 tn PKR out
of which the foreign loan was
around 100 bn dollars.
Till the end of 2020 total
volume 36 tn plus.
Out of which foreign loan was
117 bn dollars.
Reasons for increase in Loan:
1- Persistent depletion dollar
reserves:
a) trade deficit
b) debt servicing
2017-18 trade deficit was 36 bn
dollar while loan paid to
external sources was 12 bn
dollar
2018- 19 foreign loan was 13
bn dollar.
Govt. left with no option than
except taking loans
Budget deficits:
Collection is less expense is
more.
2020-21: tax collection 4.1
trillion , federal excise duty and
misc 1.8 tn so total collection
5.9 tn.Expenditure was 7.3
trillion.Deficit is 1.4 tn almost.
to meet this deficit we take
loan.
3- Loan is acquired to finance
developmental project.
Acquiring loan for DPs is always
healthy if terms and conditions
are fair
CPEC based projects are loan
based.
Easy dam is also loan based
project
Impact of loan:
1- The economy of the country
is in a vicious circle of debt trap
to pay off loan govt. has to take
loan.Every govt. after coming in
to power.first thing they did
was to acquire loan.
2- Pakistani Govt. is more
accountable to the loaners.i.e
IMF, WB and other loaners
dictate Pakistan.
Loan is always accompanied
with DOs and DONTs
In 2016: 6 bn from KSA, 6.2 bn
dollar UAE frm 4 bn china 6 bn
frm IMF
Solution : 1- Increase Tax
collection
2- Acquire loan ( short term
solution)
3- Increase Production Base
4-Economy will expand.Tax
collection increase.