The last year’s free-fall of the US dollar to Rs98 from Rs108 was manipulated and artificial which is proved by the fact that foreign reserves, which have doubled from $8 billion to about $16 billion in one year period, have not lifted the local currency value rather it is on declining trend against greenback.

Financial experts are of the view that foreign reserves alone cannot fix the local currency exchange rate with foreign currencies rather import-export gap and inflation rate are the major economic indicators to set the real value of rupee against dollar.

They said that finance minister Ishaq Dar last year managed to bring down dollar against rupee artificially, beating speculators who were manipulating against Pakistani rupee. The finance minister, by taking different short term measures, had infused confidence in a market that has always been shaky.

But, a currency’s international value over the long term depends on that country’s economic realities. And Pakistan’s economic realities haven’t changed much, they added. According to them, the widening trade deficit is evaporating the advantage of high foreign reserves which have topped up at about $16 billion, as the rupee is not appreciating against dollar. In Jul-Feb, exports were down by 5 per cent while imports were up by 4 percent.

 Thus, the gap increased by 16 per cent to $12.5 billion in first eight months of the current fiscal. The situation worsened in February as, on monthly basis, exports fell by 9 per cent while the imports increased by the same percentage to widen the gap by 46 per cent, trade statistics indicate.

Despite increase of $2.4 billion in borrowing, reserves grew by only $1.5 billion which shows that already borrowings have financed the BOP deficit, said former finance minister and noted economist Dr Hafiz Pasha, considering this a risky strategy, saying that a decline in export was a cause of concern.

 “An overvalued exchange rate had reduced competitiveness of Pakistani exports, as trade deficit has widened by 36%, he said. He said that growth in home remittances and receipt of coalition support fund, however, alleviated the situation.

Dr. Pasha was of the view that foreign exchange reserves increased also because of successful Sukuk bond float of $1 billion and release of $1.1 billion from the IMF.

He stated that rupee is week against dollar, as most of economic indicators reflected below par performance. A major concern was continued slow growth in large scale manufacturing. He noted that industrial growth this fiscal year would be even below the dismal 4% growth of the last year. One reason was the continued poor state of the power sector, he said. He added that generation almost remains stagnant, and DISCOS’ losses are high.

So far, it seems to be a case of one step forward two steps back as investment, public and private, is weak; tax collection will fall well below the target; and exports have declined in the face of an overvalued exchange rate, he stated. To maintain foreign reserves, the government has taken debt on a substantially high cost, he said.

Another noted economist Dr Salman Shah observed that the hopes of a current account surplus in second half of FY15 are fading away and the full year deficit may cross $2 billion. Yet home remittances grew by 15 per cent in Jul-Feb to reach $11.75 billion, thus taming the current account deficit albeit not enough to completely plug the trade gap.

According to experts, Senator Ishaq Dar had managed to bring down the dollar, in about a hundred days, from Rs108.50 to Rs98 through speculation. According to them, currency can be manipulated by manipulating sentiments of currency speculators.

Dr Qais Aslam, another economist, quoting the financial data, said it was unlikely that the economy would meet investment target of 16% of GDP as slow PSDP releases meant low public investment.

For the half year, amount released was 28% of the total. It was especially surprising that power sector saw the lowest rate of release. Private credit declined by almost 38% during the period while public borrowing increased by almost 750 billion rupees, he said.