There has been a considerable debate on currency management for a while. The pendulum of currency swung between defending currency to supposedly market based exchange rate in the recent times. The side-effects of both extremes are much clearer in hindsight and this may perhaps be a good time to look at their pros and cons objectively.
Pakistan seems to be suffering from the same syndrome. The obsession and the unwavering trust in multilateral agencies, including IMF, and the traditional foreign bilateral partners, particularly Saudi Arabia in the context of helicopter money, and the bells & whistles attached with the helping-hand ever extended by them in the past, fits the bill perfectly to categorise the situation, as such, in the context.
There has been a considerable debate on currency management for a while. The pendulum of currency swung between defending currency to supposedly market based exchange rate in the recent times. The side-effects of both extremes are much clearer in hindsight and this may perhaps be a good time to look at their pros and cons objectively.
There has been a considerable debate on currency management for a while. The pendulum of currency swung between defending currency to supposedly market based exchange rate in the recent times. The side-effects of both extremes are much clearer in hindsight and this may perhaps be a good time to look at their pros and cons objectively.
Unlike external account, fiscal management remains in the hands of the government. There’re two main components of fiscal account — taxation involving Federal Board of Revenue (FBR) and non-tax Public Sector Entities (PSEs). Both these components doesn’t require any external support and assistance, as such, and it could all be handled with the political-will and the right policy actions by the government. That’s where the theory of “Big Five” comes handy, whereby the idea is that “top five regulators” and “top five PSEs” shall be made independent and eventually reformed. This will help in addressing the fiscal deficit to a very large extent, and perhaps completely over a period of time.
One would wonder what’s the analogy between devaluation of Pak Rupee, interest rate enhancement and empress market clean-up operation. For one, they all seem to represent the construct of other’s. The other similarity is that they merely provide a temporary respite as they are done without the proper back-up/ structural arrangements.
Cyber-crime is a reality and exceeding with mushrooming fintech and increasing integration/ intra- operability. Various 2018 predictions about the merging of cyber and traditional financial crimes may actually prove too conservative, as in the recent past. Cyber attacks and cyber crimes will continue to grow
All other tools to manage external account are operational and temporary in nature; long-term, sustainable solutions will come with the structural changes or reforms only.
The impact of fiscal policy is always better than monetary policy in managing external account in
an environment like the one prevailing in Pakistan
The Monetary Policy is the key to influence trade / current account of any country. The extent and the effectiveness of that, however, varies from country to country, given country’s own political and economic dynamics and other realities on the ground.
