In a report released recently, the Institute of International Finance (IIF) has given Pakistan’s flexible exchange rate policy a thumbs-up, and suggested that its implementation is helping reduce external vulnerability.

The biggest argument for this is the decrease in imports. But decreasing imports required a two-prong policy, and perhaps the international body has missed the fact that the increase in import duties has possibly had a greater impact. The government, in its bid to make the balance of payments more favourable, imposed heavy taxes on imported goods, and some experts would argue that this has been more of a hurdle in bringing imports in than the exchange rate itself. This argument gains more credence if one looks at the policy of flexible exchange rates employed in the past; high tax brackets and having to pay double the value of luxury items has always had a bigger impact than the exchange rate itself.

However, a flexible exchange rate that continues to devalue the Rupee—it has depreciated by 22 percent since 2017—also means that imports as a whole are more expensive. In real terms, beyond their value, that means that even fewer are entering the country than they would with a high taxation rate alongside a stable (and higher) rupee value.

But even if all of this is ignored, there is the constant problem of the failure to increase exports. Theoretically, a low value rupee implies that our products in the international market would be cheaper, but then why has Pakistan not been able to take advantage of the only real benefit of the fall of the Rupee? We must stop relying on projections and forecasts; inflation is at an all-time high and our floating exchange rate does have a substantial part to play in that. If we were also increasing exports on the side, this would be acceptable, but as it stands, touting the floating exchange rate policy as a great policy is just a misrepresentation when the real state of the economy is there for all of us to see. Improvements are still marginal at best.