Rupee Devaluation Cannot Fix Economy: FBR Chairman

Federal Board of Revenue (FBR) Chairman has applied a story concerning yogurt to explain why simply weakening the Pakistani rupee (PKR) may not be enough to fix the country's trade deficit.

Key points

• Add ProPakistani to Preferred Sources and see more of our stories in Google Search and Top Stories.
• Langrial offered examples from Britain, South Korea, Egypt and Pakistan to explain why currency depreciation produced different results depending on the structure of each economy.
• Add as a preferredSource on Google Follow on Google News Join WhatsApp.
• The central message of his argument was simple: a weaker rupee alone cannot fix Pakistan's trade deficit.
• He additionally stated Pakistan cannot easily reduce a number of major imports as the country depends heavily on imported oil, gas, food items and medicines.

In practice, the central message of his argument was simple: a weaker rupee alone cannot fix Pakistan's trade deficit. The economy first needs the productive capacity to turn a cheaper currency into stronger exports. IMF Costs Pakistan More Than 9/11.

In a detailed note, the FBR chairman compared Pakistan's economy to a lake where someone is trying to create yogurt by mixing a spoonful of yogurt into water.

He remarked supporters of rupee devaluation think a weaker currency will produce exports cheaper, reduce imports and eventually eliminate the trade deficit. He remarked this approach only works when the economy has the right conditions to benefit from a weaker currency.

FBR chairman remarked a robust export economy needs to produce a sizeable share of the goods it sells abroad using domestic raw materials, energy and skills.

He pointed to Pakistan's textile sector. Much of its cotton, dyes, machinery components and fuel are imported. Consequently, a weaker rupee additionally increases the cost of inputs employed to produce export goods.

He additionally stated Pakistan cannot easily reduce a number of major imports as the country depends heavily on imported oil, gas, food items and medicines. Meanwhile, a sizeable portion of exports is concentrated in textiles.

FBR chairman further argued that the benefits of a weaker currency can rapidly disappear as domestic costs rise. Higher costs for food, fuel and electricity can eventually offset the initial cost advantage given to exporters.

Remittances have become a major source of foreign exchange. A weaker rupee increases the value of remittances received in dollars and other foreign currencies, but much of that funds is spent on imported consumer goods.

Langrial offered examples from Britain, South Korea, Egypt and Pakistan to explain why currency depreciation produced different results depending on the structure of each economy. Massage Machines Are Becoming More Expensive in Pakistan. Economy for Exports so PKR Thrives.

He remarked Pakistan needs to build an economy that produces more of what it exports, reduce the imported component of production, lower barriers that protect the domestic market and direct remittances toward productive investment.

He additionally cautioned against reacting too rapidly to the initial deterioration in the trade balance after a currency depreciation.

In his analogy, the yogurt is the trade balance and the milk pot is the economy needed to create the process work. Simply adding yogurt to a lake of water, he argued, will not produce the desired result. Stay Connected with ProPakistani.

Obtain the latest business news, market insights, and economic updates wherever you prefer. Follow on Google Discover.

In short, rupee Devaluation Cannot Fix Economy: FBR Chairman is the central thread here, and readers can expect follow-up reporting as the picture becomes clearer.