The currency depreciation debate is back in the market as soon as the political crisis has hit the country. The last time that the State Bank of Pakistan (SBP) depreciated the value of the rupee from Rs108.25 to Rs104.8, it was quickly stabilised at Rs 105.40 in the market.

The reasons for the move were pretty apparent. Foreign reserves in the SBP are lowering by the day and the external deficit is increasing. At the same time, when you overvalue your currency, exports are affected badly. However, at that time the finance ministry labelled this move as an agenda of those trying to take advantage of the political difficulties of the ruling party.

However, this time around there is no denying that debt over these last four years has increased. There is a decrease of $3.9 billion in the reserves of SBP. Commercial borrowing of $4.4 billion was supposed to give the economy a push but the move has produced no significant results. The increase in Foreign Direct Investment (FDI) of $2.4 billion has not managed to get the country out of the debt cycle because a lot of foreign companies have opened up. They are not registered in the tax net and that results in them making unmonitored profits off of Pakistani markets. In the last fiscal year, they sent around $201 billion in reverse remittances. The amount is almost equal to the FDI that we get every year.

Commercial borrowing has already put the economy under pressure and it is more harmful than international borrowing because commercial rates are usually higher than ones offered by bilateral and multilateral sources. The government has still not issued an exact figure of debt servicing required on external loans. The amount, however, for the first three quarters is over $5.2 billion. This means that the government would have to indulge in more commercial borrowing in the next fiscal year, and an appreciation in the value of the dollar should be expected.

Hence, the increasing debt is one of the biggest economic challenges that Pakistan is facing right now. The answer does not lie in presenting a pleasant scenario; the situation is actually difficult to deal with. The government, for the longest time, has been denying the gravity of the situation. Rupee depreciation is on the cards and must be used to offer the market and the economy some stability.