Pakistan has historically been a highly import dependent country. The exploration of natural resources has also been full of bureaucratic delays and controversies. As a result, we could never substantially reduce our import bill for energy, food items and other raw materials.
Due to these fundamental problems, there has always been a debate on whether to artificially manage Pakistan’s exchange rate against the US Dollar and other foreign currencies, or let it “float freely”, which is currently the case. Fact of the matter is, Pakistan finds itself in the midst of a vicious cycle of a rapidly depreciating Rupee, and constantly rising energy / input costs.
In this post, we will try to highlight some immediate remedial measures.
How to Halt a Depreciating Rupee?
Regardless of the incumbent regime, Pakistan’s rupee has been constantly on the decline against the US Dollar, and other major currencies. While this can be favorable for an export oriented economy, like Japan, it is a deadly trap for a highly import dependent country like Pakistan.
Let us explore some ways to stop, or at least mitigate this sharp decline:-
- Offer Pakistani expats competitive return for investing their dollars in Pakistan’s term deposit certificates, or similar short to mid term instruments.
- Dispose of loss making State Owned Enterprises (SOEs), like the Steel Mills and Pakistan International Airlines (PIA), to International consortiums or groups, which will result in inflow of valuable foreign exchange.
- When these buyers will re-structure these sick SOEs, it will attract more Foreign Direct Investment (FDI) in the country, reducing the pressure on our rupee.
- Ban the import of luxury and ultra-luxury items, whether it’s high-end automobiles, jewelry, furniture or fixtures.
- Invite foreign investors to participate in local mega infrastructure development projects such as dams, roads, railways, power distribution etc., purely on the basis of commercial viability.
How to Reduce Rising Energy / Input Costs?
The constantly rising energy import bill has been a major challenge for Pakistan. As a result of expensive fuel, every other input cost, such as power, logistics and storage etc. are exorbitantly high.
Here are some measures to mitigate this challenge:-
- Improve the existing energy mix for power generation, by increasing renewable sources like solar, wind and hydel power.
- Reduce the reliance on power generation units that run on natural gas, LNG, furnace oil or coal.
- Shut down in-efficient thermal power generating units, even if it comes at the cost of some scheduled load-shedding.
- Invite the world’s top oil and gas exploration companies to undertake drilling activities, by offering lucrative incentives.
- If such exploration activities are successful, we would need lesser dollars to fulfill our fuel and energy requirements.
Conclusion
Most of the measures we have suggested above can be implemented in the short to mid term. Due to the gravity of the current crisis, this needs to be done really quickly, and every Government department needs to work in sync to overcome the associated challenges.
If left un-addressed, these issues pose serious existential threats to Pakistan. Gone are the days when a country could flex its military muscle, and dictate the rest of the world. Now, we live in an era of Technology, Research and Development (R&D) and Innovation.
Every citizen of Pakistan needs to play an active role, whether big or small, and help the country come out of this quagmire.