Sequel to rupee nosedive: public debt up by Rs 630 billion in 45 days

[Naveed Yaseen]

ARIF RANA
ISLAMABAD (August 23 2008): Pakistan's public debt has gone up by Rs 630 billion due to depreciation of rupee against dollar in the past one-and-a-half months. Since Pakistan's public debt is all time high, depreciation of one rupee against dollar would add Rs 45 billion to it. Dollar-rupee parity was around 1:64 some one and half months back. Then unending rupee nosedive changed this ratio to 1:76.50 on August 22.

The difference of 14 rupees against dollar simply means addition of Rs 630 billion in public debt in 45 days or so, without getting loan of even a single dollar from any source. The Ministry of Finance (MoF) is in shock over this development, but it seems tied up in the shackles of autonomy granted to the State Bank of Pakistan (SBP) to govern the monetary market under its Act of 1956.

The dollar is gaining substantially vis-à-vis rupee for long and, on Friday, the last working day of the money market, it crossed the level of 76.50 in open market. It is the first time in Pakistan's history that the rupee is on such a sharp decline and no assurance seems working either of the federal government or the SBP about better performance of the local currency.

The rupee is so fragile against dollar that it is shedding value at a most alarming pace. It did show slight recovery for only two days during the last a couple of months--on August 18 and 19--on President Musharraf's resignation. After two days, the rupee again reverted to worse performance. Between August 20 and 22 it lost more than four rupees.

This has been a cause of concern for the economic team of the government, headed by Finance Minister Naveed Qamar. But they say that SBP is an autonomous body and any direction for correction would be against the rules of the game. But, will the federal government keep on sitting on the back seat, or wait for even worst, or it has some solution for SBP to suggest for correction?

Special Secretary Finance Dr Ashfaque Hasan Khan, who is also Director General of Debt Management Office, looks visibly disturbed over rupee depreciation. He is worried over the rising public debt due to rupee downfall. However, like other top level officials of MoF, he also has no direct answer to the question whether there could be some role for the federal government to ask SBP to take some corrective measures, or it would keep on watching the downfall of the rupee indefinitely.

Senior officials of MoF are of the view that since the SBP is enjoying full autonomy, it is the only authority to take corrective measures for checking any fluctuation in exchange rate. Talking to this correspondent one MoF official said: "Technically and legally speaking it's for the SBP to intervene in the money market. However, it's an issue which is of great concern for MoF." One can ask the policy makers whether other Asian countries also enjoy the same level of autonomy as SBP is enjoying under its Act 1956.

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