On the 26th of January 2023, the Pakistan rupee declined by 9.6% against the dollar which was termed the “biggest” one-day drop the country has experienced in two decades. The International Monetary Fund (IMF), among many stipulations, had put forth one that asked the 70-year-old Finance Minister of the country, Ishaq Dar, and the Sharif-led government to let the market forces of demand and supply play their role.
Although, in the beginning, Dar held his ground against such demands, as the economy of Pakistan couldn’t absorb the aftershocks of such a decision, he eventually gave in, renouncing his economic policies, popularly known as “Daronomics.”
Understanding “Daronomics” in Pakistan
Under this approach, which was employed by Dar, exports become uncompetitive in the international market, as the Pakistan rupee’s value was overvalued artificially. The result? The consumption was largely driven by imports, and to finance them, more dollars were needed. In Pakistan, there is no comparative advantage (specialization in producing a particular good) – there is no investment, research and development opportunities are non-existent, and there have been no efforts to diversify trade in other sectors.
Daronomics failed to take into account that a currency’s value is majorly determined by the level of exports, remittances, and investments. Even if such a miscalculation had been made on its part, this policy’s failure in its entirety was a façade that was never meant to work.
The Inevitability of Failure
Major currencies of the world such as the dollar and the euro slumped to a dismal macroeconomic environment triggered by the ongoing Russia-Ukraine war, the shortage of gas, and speculations of a world recession. In such a scenario, the artificially-held PKR had no chance of faring well anyway, especially when the political discourse in the country is rampant, and the aftermath of the 2022 floods, which caused damage worth $30 billion, can still be felt.
In addition to the above, the IMF has been incessantly asking the Sharif-led government to helm the country in a way where the market regulates itself; to seek a bailout program, the debt-ridden nation had no choice but to ultimately give in to their demands. If it doesn’t, then a default awaits, which is already a possibility, becomes a reality, and people, who are already crushed under rising inflationary pressures, and unemployment woes, will face an even more brunt future, with prices rising by more than 70%, making it hard for the common man to afford even two meals a day anymore.
Export-Oriented Approach: A Probable Solution
Unless Pakistan can add value to its exports and break free from the hinges of import dependence, there is no future. This can be possible via investment in innovation facilities, technological advancements by setting up industries, and lastly, by educating the workforce, and instilling beneficial skills in them for which the global demand is high.
Being an agrarian economy in this day and age is not enough, especially now when even wheat has to be imported, along with other products such as capital-intensive equipment, mobile phones, and petroleum. However, what takes even greater precedence for this approach to succeed is the cooperation of all political parties.
There has been no government in Pakistan’s history that has completed its tenure, and those who attempt to are coerced through institutional platforms such as the judiciary to resign and quit. Until there is stability, and cohesion in laws, there is no room for foreign direct investment or for trade to flourish.
Reconciliation and Effective Policies are a Necessity
The irony of the situation is that there was a time, back in the 1960s, when Pakistan was said to be an economy that exhibited strong potential for growth and was seen to be a formidable opponent, as well as a role model for countries to seek inspiration from. However, the contradictory situation today showcases fault in policy measures such as “Daronomics,” ineffective governance, and deep-rooted malice among the ruling class of Pakistan, who would rather risk everything and lead the nation to shambles, than uplift it, and let go of their inflated egos.
In places like New Zealand, where Prime Minister Jacinda Ardern has chosen to respectfully step down and not campaign for re-election in February 2023, Pakistan’s leaders do the opposite and try to exert their hegemony and their influence for as long as they can, no matter the cost. In the midst of political chaos, only the innocents suffer, and unless there is any form of reconciliation, and well-thought-out frameworks in mind, the situation of Pakistan is not bound to improve.
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