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More worries for Pakistan’s exporters as Finance Minister vows to prop up local currency

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Will ‘Daronomics’, as Pakistani Finance Minister Ishaq Dar’s policies are called, lead to another dent in the country’s already battered export sector? Dar, who took office late last month, described strengthening the (Pakistani) rupee as one of his main tasks. A close associate of PML-N supremo Nawaz Sharif, Dar is known for his interventions in the foreign exchange market during his previous terms.

Ali Hasanain, an associate professor of economics at Lahore University of Management Sciences (LUMS) in a blog published by the Atlantic Council, a US think tank, however estimated that the appreciation of the currency between 2013 and 2017 has leads importers and industries to use imported raw materials to meet their needs. domestic markets, and consumers began to spend as imports became cheaper. “Exporters lost their competitiveness and exports as a percentage of gross domestic product (GDP) fell by more than 30%,” he wrote on his blog.

While a weaker currency helps exporters by making them more competitive, imports become more expensive.

Pakistani policymakers have stressed the need to boost the export sector for sustainable growth. The Pakistan Institute of Development Economics (PIDE) said in a report that exports have fallen victim to protectionist tendencies that encourage production for the domestic market rather than world markets. He underscored the need to introduce a paradigm shift to induce industries to shift their production from low-value to high-value products.

“An artificially backed currency can be detrimental even if it can work for a short time,” said an analyst at a research firm.

Meanwhile, Dar may boast of having been able to secure $2 billion in aid from the World Bank for emergency operations to deal with the devastating floods, but his task of putting the country back on a path of sustainable growth will be strewn with pitfalls.

It is estimated that the floods in Pakistan could cause an economic loss of more than $30 billion.

“With the spotlight on him as he replaced (former finance minister) Miftah Ismail when he promised to bring down inflation while strengthening the local currency, he will be somewhat relieved but he has a difficult task given the national and geopolitical risks,” the analyst told India Narrative.

Although Ismail managed to relaunch the International Monetary Fund bailout, Pakistan’s macroeconomic indicators deteriorated. To add to the problem, the IMF laid down strict preconditions that Pakistan would have to meet.

The News said that with strict conditions imposed by the IMF, Pakistan has very limited fiscal and administrative space to exercise discretion. “From frequent fuel price adjustments, tariff reviews, imposition of taxes and free floating of the currency to policy measures of the State Bank of Pakistan (SBP), almost all macro-economic actions are subject to IMF approval,” the newspaper said.

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