Dar-dollar exchange rate

Honorary Finance Minister Ishaq Dar is in a bit of a fix these days. This is not counting his prolonged ailment, which the Islamabad High Court isn’t buying (how insensitive), or indeed the graft allegations which should at the very least put an end to his political career, if not to his life as a free citizen currently not the inhabitant of any prison.

No, Dar’s greatest predicament is the fact that the final nail in the coffin of his limited prowess in financial dealings is between the hammer and the anvil. That this won’t come as a surprise to anyone with a fleeting interest in economic policymaking in the country, especially those that might have been paying attention to taxation gaffes, underscores that the nail in question has been crying out for a whack for a long time.

Over the last couple of years, the beauty of Dar-dollar exchange rate parity had won the finance minister brownie and donut points from every beholder that wore rose-tinted lenses.

But considering that there was a fair amount of plastic surgery involved the romance had reached breaking point, and something had to give. As it turns out, all had to.

First, Dar got embroiled in long overdue corruption cases, and then got sick — the sequence is up to each reader’s own taste — eventually taking leave from his responsibilities as the finance minister.

Second, with chaos inside the finance ministry, which eventually came under Prime Minister Shahid Khaqan Abbasi’s control, the hitherto policies enforced by the now on leave finance minister were reviewed. Among these was the artificial rupee valuation.

Third, with the State Bank of Pakistan finally withdrawing its support and the markets being allowed to determine the value, the rupee fell to an all-time low against the US dollar on Wednesday at Rs

110.52 — this included a 2.6% single day plunge as well.

Flashback: the rupee’s value had been stable since 2015, remaining in and around the PKR 104-105 bracket. It’s overall devaluation now stands at 5% per annum this decade.

The prime culprit in tarnishing the Dar-dollar relationship is the external account position that has fallen from $2.6 billion last fiscal year to $12.2 billion this time around.

This figure could get prodigiously worse come summer considering the precipitous hike in imports.

While the noise from the ministry suggests that imports are being curtailed and exports, well, being looked into, and the fact that letting the market determine the exchange rate will help the current account deficit as well, it’s the Dar-dollar future that looks in jeopardy.

But the question marks are two pronged, and the first has two sub-categories.

First, will Ishaq Dar remain the finance minister once his three month PM approved leave is over?

If yes, who owns the decision to let the rupee fall to something resembling its actual value? If not, will the PM remain the de facto finance minister, who in turn is being remote controlled by his party’s president?

Second, if Dar goes as a result of a judicial, personal or party decision, who will be in charge of the rupee’s fate, which if markets are allowed to do their job should plummet another 5-6% before the next elections?

Who takes the clutch decisions if an IMF bailout is needed in the lead up to what appear to be crunch elections?

Is it any wonder then that the civil-military leaderships publically clashed over ownership of the economy in October considering those that are elected to not just own but navigate the economy through the many challenges — many of which are self-inflicted — are not even sure who’s in charge?

The ruling PML-N needs to get its act together or else all it would have for an election manifesto would be based entirely on how the world is conspiring against them — if that isn’t the case already.

As for Dar, it’s only a matter of time before his game’s over. All that remains to be seen is just how over it would be.

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