Rupee devaluation: PM kept in the dark

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ISLAMABAD: PM Imran Khan on Monday made a startling disclosure about knowing sudden devaluation of rupee against dollar through the media on last Friday indicating that there was complete lack of communication and coordination on fiscal, monetary and exchange rate policies at the top level.

On last Thursday, the Fiscal and Monetary Policies Coordination Board met under chairmanship of Minster for Finance Asad Umar whereby both the Ministry of Finance and State Bank of Pakistan (SBP) discussed monetary and fiscal situation and highlighted arising challenges for the economy. On the every next day, the devaluation of rupee against dollar occurred and discount rate went up by 1.5 percent — from 8.5 to 10 percent — so expecting that the federal government was not in knowledge is beyond comprehension.

There are reports about sharp differences among top guns of the PTI on economic policies including between Asad Umar and Jehangir Khan Tareen. However, Asad Umar while talking to The News on Monday denied it and said that he did not meet with Jehangir Tareen during the last four days and media was airing wrong stories on this issue. “Nothing of this sort had actually happened,” he added.

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When he was asked about the prime minister’s statement on exchange rate, the minister replied that he was in meetings all the day and without understanding his whole context he could not offer any comment on the issue. On the other hand, Governor State Bank of Pakistan (SBP) Tariq Bajwa is currently in Saudi Arabia for offering Umrah so things will become clearer in days to come.

Also Read: Government borrowing from SBP surges to historic high at Rs5.4tr

However, sources said that if the Finance Ministry did not inform the PM about details of monetary, exchange rate and fiscal issues in details, it could be termed as complete lack of communication and coordination at top levels of government.

Informed sources said that the PM was not communicated fully about the steep decline of rupee against dollar that touched lowest ebb of Rs144 against dollar in early hours of Friday, but later in the day the rupee was again re-adjusted and settled at Rs139 against US dollar. It seems that correction was done after intervention of the premier because he had definitely opposed such steep depreciation of currency having far reaching negative impact on poorest segment of the society on terms of hiking of prices of basic necessities of life.

On technical ground, there is Monetary Policy Board for taking decision on monetary policy. There are two ways to suppress demand including through monetary tightening and second through using exchange rate anchor. The SBP used both tools with the objective to cut down demand for slowing down surge in trade and current account deficits.

The sources said that when the Fiscal and Monetary Coordination Board met on last Thursday in Islamabad in which Asad Umar, Minister for Planning Khusro Bakhtiar and Minister for Commerce Abdul Razak Dawood had represented the federal government then how it was possible that the SBP took decision without having knowledge of the Ministry of Finance.

The Monetary Policy Board had excluded the secretary finance from its fold under the latest arrangement placed by the government for ensuring autonomy to the SBP under the last IMF programme. However, currently the Monetary Policy Committee consists of 10 members including the SBP governor as chairman, three members of the Board nominated by the SBP Board, three senior executives of the Bank, nominated by the governor, and three external members (economists) appointed by the federal government on recommendation of the SBP Board. The external members are appointed for a term of three years. Three external members of the monetary board are Dr Asad Zaman, Dr Qazi Masood Ahmed and Dr Aliya Hashmi Khan. In the presence of nominee of the federal government, it is not possible that the federal government was not in complete knowledge about developments happening on monetary and exchange rate fronts. So all happened only because of miscommunication and lack of coordination among top functionaries, the sources added.

Former finance minister Dr Hafiz A Pasha said that keeping in view huge gap on external front, Pakistan would have to take tough decisions. He said if there was no IMF arrangement then tougher decisions will have to be taken by the government in days and months ahead.

(This news/article originally appeared in The News on December 4th, 2018)

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