Pakistan's Currency's Downward Spiral - by hallian
Muhammad Saad Sarwar
April 26th, 2008
Pakistani rupee has been spiralling downwards against the dollar in the past few weeks touching Rs. 65 to a dollar. This at a time when most currencies in the world, including those of the developing countries are showing a rise in value to the dollar. Some of this decline can be attributed to Pakistan’s swelling trade deficit which stood at $11 billion in April 2008, along with the price hike of oil touching an all time level of $120 to a barrel. This trend is difficult to arrest unless concrete measures are taken to stop the import of exotic food items which the general populace can live without, such as foreign juices, cheese, chocolates etc. Also, the import of items of luxury which do not directly take part in the development of the country should be somewhat limited and kept to an appropriate level per year.
Pakistan also very desperately needs to diversify its reserves into a basket of currencies which should include the rising Euro and the British Pound amongst other rising currencies such as the Thai Baht, Turkish Lira and Brazilian Real, as the country's portfolio investment suffered a massive drop of 103% during the first three quarter of FY 2007-08.
Warren Buffet the world’s most famous investor has also been reported to have invested a substantial amount of money in rising currencies such as the Brazilian Real away from the traditional stocks. It is about time Pakistan took the diversification of reserves seriously and pegged the Pakistani rupee to a more stable euro than a vulnerable dollar.