Daronomics II

Ishaq Dar is a miracle man. He has pulled the rupee from the abyss the rupee was falling into. Daronomics I (2013-17) gave us three things: a stable rupee, economic policy certainty and public confidence in the handling of the economy. In 2013, Ishaq Dar took oath of office on June 7. In 2013, the average rupee-dollar parity for the year was Rs101 to-a-dollar. In 2017, when Ishaq Dar left the office, the average rupee-dollar parity for the year was Rs105 to-a-dollar. Yes, Daronomics I gave us a stable rupee over a four-year period.

Economic policy uncertainty is a “class of economic risk where the future path of government policy is uncertain”. To be certain, economic policy certainty is crucial for both foreign and domestic investment growth. Daronomics I gave us a relatively high degree of economic policy certainty.

Public confidence in the handling of the economy positively affects economic growth. Public approval of the government’s handling of the economy actually results in higher levels of economic growth. Daronomics I gave us an average GDP growth of 4.4 per cent over the 2013 to 2017 period.

Daronomics II has promised three things: strengthening of the rupee, reducing the rate of inflation and lowering the rate of interest. Ishaq Dar took the oath of office eleven days ago. The rupee has gained a wholesome Rs20 against the mighty dollar over the past eleven days. Daronomics II has done two things: scaring away ‘speculators’ in the open market and scaring away ‘manipulators’ in the interbank market.

In hindsight, Daronomics I gave us an overvalued rupee which made Pakistani exports relatively expensive and imports relatively cheaper. Resultantly, our exports as a percentage of GDP went down from 13.3 per cent of GDP in 2013 to 8.2 per cent of GDP in 2017. We would not want Daronomics II to repeat the mistake. Scaring away ‘speculators’ and ‘manipulators’ is in our economic interest – an overvalued rupee is not. An overvalued rupee would mean two things: an import-driven consumption boom and a loss in export competitiveness.

Will Daronomics II be able to reduce the rate of inflation? Yes, because global commodity prices are coming down. Yes, because the rupee has strengthened. Will Daronomics II be able to lower the rate of interest? This will indeed be a tough one because this means swimming against the global tide. The US Federal Reserve is projected to raise the rate of interest from 0.8 per cent to 4.5 per cent. The European Central Bank is also expected to “unleash a jumbo rate hike…..” In Pakistan, where the Pakistan Bureau of Statistics has reported inflation of 23.2 per cent, lowering the rate of interest will actually be counterproductive.

We have a finance minister who is an agenda-setter. We have a finance minister who has a reservoir of strategic power. We have a finance minister who has good communication skills. We have a finance minister who has the requisite experience. We have a finance minister who is up against an extraordinarily challenging environment.

The writer is a columnist based in Islamabad. He tweets @saleemfarrukh and can be reached at: farrukh15@hotmail.com