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Is dollar going to touch 180 PKR after IMF bailout?

Lets talk about this issue point by point:

1. The reason for a sudden devaluation: The reason for a sudden devaluation in Pakistani Rupee was that for many years exchange rate was artificially maintained by pumping more and more $ in the economy by the previous governments. So basically they were artificially keeping the supply high so that it meets demand and price of $ remains low. Now the problem with this approach is that for a country like Pakistan, where the government hardly has any money in foreign reserves and where the economy is so heavily dependent on imports, if you keep doing that you will have to keep on taking more foreign debt to maintain the supply. This government took the principled stance that the Rupee Dollar parity should be determined by market forces (*Read* our actual economic condition), albeit with some regulation, and not artificially by pumping dollars into the system.

2. Why is it this important?: While previous governments kept on telling us how they have maintained the value of a dollar to a certain level, they didn't tell us how that affects us. Basically they kept on taking foreign debt to maintain this exchange rate, but to what end. Keeping the price of Rupee artificially high, previous governments were incentivizing (and subsidizing) imports while disincentivizing exports. To understand this lets take a simple example. Say a child of yours like to buy expensive Swiss chocolate, he has a pocket money of 1000 Rupees for the whole month, and the chocolate costs 200 Rupees. So the first month he buys a Swiss chocolate bar for 5 consecutive days and ends up spending all the money. He is now left with 25 days in the month and has no money for buying lunch at school anymore. What would you do, so you think you are a caring father/mother and give them another 1000 Rupees so he/she can eat for the rest of the month at school. But he/she again buys 5 more chocolate bars for the next 5 days and spends all of it. So now you what options do you have, keeping giving him/her money so he/she can keep buying expensive stuff, or tell him/her that this is amount you get in a month so spend accordingly. And then he/she starts to learn how he/she can get the chocolate once a month, eat cheap stuff others days and maybe take lunch from home on other days. This is exactly what is happening with Pakistan right now. This government is telling the people that you have been spoiled by our previous governments into thinking that we can keep on importing all the stuff you need, not make anything domestically for your own consumption or for exports and the government will keep taking loans on your behalf. But consider what the costs are, an increasing debt to GDP ratio (the proportion of how much loan you have to repay and the total earnings you do), compromised national security (because the debtors want you to agree to their terms which might affect national security) and eventual bankruptcy. This government is telling us, you ain't got the money to buy the shiny new car, make your own cars or make something else, sell it and then use that money to buy whatever you want.

3. Having an exchange rate high doesn't mean the economy is doing good or bad: Take the example of Japan and Afghanistan, a US dollar gets you 111 Yens while it only gets you 77 Afghani. Does that mean Afghanistan is a richer country than Japan? As a matter of fact, countries that want to increase exports intentionally keep their currency low to make sure exports are incentivized. China is repeatedly blamed by the US that it devalues it currency even below it actual value, to keep an upward pressure on exports and downward pressure on imports.

4. Is investing in US Dollars a good idea?: Well, the interest rate in Pakistan is close to 10%, and real estate/property appreciates in Pakistan at around 30% a year. So there are many other better venues to park your money as compared to Dollar.

5. Final thoughts: This is not from a profitability perspective, but if you have money lying around, invest in a business in Pakistan. It will earn you money, keep the money circulating in the economy, create jobs and generate real value in the society.



**Update**: Forgot to add, in my opinion, the Rupee is very close to its actual value right now, and any devaluation we see, if any, would be minimal.
Better way to understand overvaluation is this..
You suddenly claim that value of a pencil is 100rs and you arr ready to buy it from every one(the pencil is the rupee which is govt granteed product) everyone will rush to buy that pencil for 10 rs ans sell it to you on 100rs...

In essence rupee value has gone down due to low productivity and higer lending from state bank(rupee printing) thus if govt wants to increase the real effective rate it has to do less of the above not by jacking up dollars in open market
 
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Look at these two graphs and sink in shame as a nation. What are you all complaining about? This is the Trade Deficit position from 2003 to current date. Excess of Imports over exports or Imports Less Exports, The amount that you pay in excess to the amount you earn in international market. Have any of you ever put a second thought in at least cutting some spending on imported items ever? This is our fault our each and everyone of us who used to change every new model of mobile phones every 6 months without even needing it. Who eat imported chocolates for being CLASSY, Spent savings on imported Cars instead of making some effort on developing own businesses, Purchasing expensive imported luxuries and electronics even when local alternatives were available. the business men who lavishly took loans from Banks for business development during 2010s and purchased Land Cruisers, Foreign Trips, Properties and so on instead of spending on industrial development.
Trade DEficit.png



And this is the position of foreign loans for the same period. When you were on shopping spree from international market, the deficit of dollar was covered by taking more loans. Piling up to this day.
Foreign Debts.png


What are you all complaining for dollar price rising? Can you print dollars? the amount of Imported goods all of you consume where will you pay for these goods?
Only Exports and Foreign Remittances bring dollars in country and the little dollars that is earned we spend lavishly on stupid things. (Cooking oil, Toys, Chocolates, Cars, Consumer Appliances, Mobiles :hitwall:). What can a sane government do except increasing price of Dollar to such a level that people are forced to abandon Imported goods when they get to expensive? while keeping fuel prices stable with subsidies so that economy is not jammed by skyrocketed fuel prices (Which exactly current government is doing, Dollar price is increaasing repidly while keeping fuel Prices low). What if this step was taken 5 6 years ago to control the trade deficit? Ye din dekhna parta?

Ajeeb log hain yaar hamarey mulk ke. Apna next Iphone Samsung or Huawei tab lena jab current mobile Kharab ho jaey us se pehley na lena. Phir baat karna Dollar price ki. :(
 
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Thank you for the analysis.
However, why wouldn't the rupee depreciate further after this new IMF deal?
Lets talk about this issue point by point:

1. The reason for a sudden devaluation: The reason for a sudden devaluation in Pakistani Rupee was that for many years exchange rate was artificially maintained by pumping more and more $ in the economy by the previous governments. So basically they were artificially keeping the supply high so that it meets demand and price of $ remains low. Now the problem with this approach is that for a country like Pakistan, where the government hardly has any money in foreign reserves and where the economy is so heavily dependent on imports, if you keep doing that you will have to keep on taking more foreign debt to maintain the supply. This government took the principled stance that the Rupee Dollar parity should be determined by market forces (*Read* our actual economic condition), albeit with some regulation, and not artificially by pumping dollars into the system.

2. Why is it this important?: While previous governments kept on telling us how they have maintained the value of a dollar to a certain level, they didn't tell us how that affects us. Basically they kept on taking foreign debt to maintain this exchange rate, but to what end. Keeping the price of Rupee artificially high, previous governments were incentivizing (and subsidizing) imports while disincentivizing exports. To understand this lets take a simple example. Say a child of yours like to buy expensive Swiss chocolate, he has a pocket money of 1000 Rupees for the whole month, and the chocolate costs 200 Rupees. So the first month he buys a Swiss chocolate bar for 5 consecutive days and ends up spending all the money. He is now left with 25 days in the month and has no money for buying lunch at school anymore. What would you do, so you think you are a caring father/mother and give them another 1000 Rupees so he/she can eat for the rest of the month at school. But he/she again buys 5 more chocolate bars for the next 5 days and spends all of it. So now you what options do you have, keeping giving him/her money so he/she can keep buying expensive stuff, or tell him/her that this is amount you get in a month so spend accordingly. And then he/she starts to learn how he/she can get the chocolate once a month, eat cheap stuff others days and maybe take lunch from home on other days. This is exactly what is happening with Pakistan right now. This government is telling the people that you have been spoiled by our previous governments into thinking that we can keep on importing all the stuff you need, not make anything domestically for your own consumption or for exports and the government will keep taking loans on your behalf. But consider what the costs are, an increasing debt to GDP ratio (the proportion of how much loan you have to repay and the total earnings you do), compromised national security (because the debtors want you to agree to their terms which might affect national security) and eventual bankruptcy. This government is telling us, you ain't got the money to buy the shiny new car, make your own cars or make something else, sell it and then use that money to buy whatever you want.

3. Having an exchange rate high doesn't mean the economy is doing good or bad: Take the example of Japan and Afghanistan, a US dollar gets you 111 Yens while it only gets you 77 Afghani. Does that mean Afghanistan is a richer country than Japan? As a matter of fact, countries that want to increase exports intentionally keep their currency low to make sure exports are incentivized. China is repeatedly blamed by the US that it devalues it currency even below it actual value, to keep an upward pressure on exports and downward pressure on imports.

4. Is investing in US Dollars a good idea?: Well, the interest rate in Pakistan is close to 10%, and real estate/property appreciates in Pakistan at around 30% a year. So there are many other better venues to park your money as compared to Dollar.

5. Final thoughts: This is not from a profitability perspective, but if you have money lying around, invest in a business in Pakistan. It will earn you money, keep the money circulating in the economy, create jobs and generate real value in the society.



**Update**: Forgot to add, in my opinion, the Rupee is very close to its actual value right now, and any devaluation we see, if any, would be minimal.
 
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So you think rupee will be stable at 140 even after IMF? IMF always forces you to devalue rupee
IMF comes when previous govt has artificially kept higher rupee after it prints alot of notes (state bank laons) ...it just wants the rupee to be at a normal rate ...

IMF job is to tell that govt dont give free launches as simple as that..this time the problem is it doesnt trust the govt anymore and wants complete independence of state bank with zero power from finance minister which in my opinion is good idea when PMLN or pppp are in power but bad idea if a responsible govt is in power

Thank you for the analysis.
However, why wouldn't the rupee depreciate further after this new IMF deal?
It will at rate of 1-2% per year depending upon productivity and govt state bank lending(printing notes)..if govt does more lending you will see more value losing but as of today it seems its at the right place(looking at real effective rate)
 
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If that happen , that will break Pakistani economy.... Dollar at 142 now , just go out and check how hard this hit common(150+ Million) Pakistanis ……… As soon as it hit 150 many small business will go bankrupt and if it hits 160 or below , that will be end for t least (100+ million) Pakistanis ..

May Allah Curse Pakistani elite (all types) , they destroyed Pakistani economy for their personal gains..
 
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Look at these two graphs and sink in shame as a nation. What are you all complaining about? This is the Trade Deficit position from 2003 to current date. Excess of Imports over exports or Imports Less Exports, The amount that you pay in excess to the amount you earn in international market. Have any of you ever put a second thought in at least cutting some spending on imported items ever? This is our fault our each and everyone of us who used to change every new model of mobile phones every 6 months without even needing it. Who eat imported chocolates for being CLASSY, Spent savings on imported Cars instead of making some effort on developing own businesses, Purchasing expensive imported luxuries and electronics even when local alternatives were available. the business men who lavishly took loans from Banks for business development during 2010s and purchased Land Cruisers, Foreign Trips, Properties and so on instead of spending on industrial development.
View attachment 553853


And this is the position of foreign loans for the same period. When you were on shopping spree from international market, the deficit of dollar was covered by taking more loans. Piling up to this day.
View attachment 553854

What are you all complaining for dollar price rising? Can you print dollars? the amount of Imported goods all of you consume where will you pay for these goods?
Only Exports and Foreign Remittances bring dollars in country and the little dollars that is earned we spend lavishly on stupid things. (Cooking oil, Toys, Chocolates, Cars, Consumer Appliances, Mobiles :hitwall:). What can a sane government do except increasing price of Dollar to such a level that people are forced to abandon Imported goods when they get to expensive? while keeping fuel prices stable with subsidies so that economy is not jammed by skyrocketed fuel prices (Which exactly current government is doing, Dollar price is increaasing repidly while keeping fuel Prices low). What if this step was taken 5 6 years ago to control the trade deficit? Ye din dekhna parta?

Ajeeb log hain yaar hamarey mulk ke. Apna next Iphone Samsung or Huawei tab lena jab current mobile Kharab ho jaey us se pehley na lena. Phir baat karna Dollar price ki. :(
Can't remember when did the last time I imported something [emoji23]
Mera tou phone bhi 2014 model ka hai.
 
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Look at these two graphs and sink in shame as a nation. What are you all complaining about? This is the Trade Deficit position from 2003 to current date. Excess of Imports over exports or Imports Less Exports, The amount that you pay in excess to the amount you earn in international market. Have any of you ever put a second thought in at least cutting some spending on imported items ever? This is our fault our each and everyone of us who used to change every new model of mobile phones every 6 months without even needing it. Who eat imported chocolates for being CLASSY, Spent savings on imported Cars instead of making some effort on developing own businesses, Purchasing expensive imported luxuries and electronics even when local alternatives were available. the business men who lavishly took loans from Banks for business development during 2010s and purchased Land Cruisers, Foreign Trips, Properties and so on instead of spending on industrial development.
View attachment 553853


And this is the position of foreign loans for the same period. When you were on shopping spree from international market, the deficit of dollar was covered by taking more loans. Piling up to this day.
View attachment 553854

What are you all complaining for dollar price rising? Can you print dollars? the amount of Imported goods all of you consume where will you pay for these goods?
Only Exports and Foreign Remittances bring dollars in country and the little dollars that is earned we spend lavishly on stupid things. (Cooking oil, Toys, Chocolates, Cars, Consumer Appliances, Mobiles :hitwall:). What can a sane government do except increasing price of Dollar to such a level that people are forced to abandon Imported goods when they get to expensive? while keeping fuel prices stable with subsidies so that economy is not jammed by skyrocketed fuel prices (Which exactly current government is doing, Dollar price is increaasing repidly while keeping fuel Prices low). What if this step was taken 5 6 years ago to control the trade deficit? Ye din dekhna parta?

Ajeeb log hain yaar hamarey mulk ke. Apna next Iphone Samsung or Huawei tab lena jab current mobile Kharab ho jaey us se pehley na lena. Phir baat karna Dollar price ki. :(
Nothing to do with mobiles everything to do witv your ballet box and Pakistani people love with person who has bankrupted pakistan twice since bhutto did it and put Pakistan through 6-7 IMF cycles..they say muslim is never bitten by same snake but Pakistani is never bitten by same snake for the 7th time..for 6 times it will gladly be bittwn
 
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Better way to understand overvaluation is this..
You suddenly claim that value of a pencil is 100rs and you arr ready to buy it from every one(the pencil is the rupee which is govt granteed product) everyone will rush to buy that pencil for 10 rs ans sell it to you on 100rs...

In essence rupee value has gone down due to low productivity and higer lending from state bank(rupee printing) thus if govt wants to increase the real effective rate it has to do less of the above not by jacking up dollars in open market
Rupee Printing has nothing to Do with Dollar Value going up and down, It only Effects the Inflation if it is not supplemented with equal rate of Economic growth.
Dollar value goes up when government decides to make it go up to control Imports(Make Imports more expensive) i.e when you constantly keep importing beyond your means and make massive trade deficit every year
 
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If that happen , that will break Pakistani economy.... Dollar at 142 now , just go out and check how hard this hit common(150+ Million) Pakistanis ……… As soon as it hit 150 many small business will go bankrupt and if it hits 160 or below , that will be end for t least (100+ million) Pakistanis ..

May Allah Curse Pakistani elite (all types) , they destroyed Pakistani economy for their personal gains..
I doubt it..the economy was destroyed by common man asking for corrupt govt..why blame elite for corruption when common man praise it and tolerates it
 
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Can't remember when did the last time I imported something [emoji23]
Mera tou phone bhi 2014 model ka hai.
Then i commend you brother. you should convince all your friends to follow suit. Look around you what people are doing. Anyone who can afford imports will go for it, Isn't it? Make these Imports out of reach of these people and may be it will cause local industry to develop alternatives and reduce imports
 
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Rupee Printing has nothing to Do with Dollar Value going up and down, It only Effects the Inflation if it is not supplemented with equal rate of Economic growth.
Dollar value goes up when government decides to make it go up to control Imports(Make Imports more expensive) i.e when you constantly keep importing beyond your means and make massive trade deficit every year
Fiscal deficit drives state bank lending, which drives inflation, which drives interest rate and if not appropriately managed will drive current account deficit ... this is economy 101
The reason why IMF wants both...

Thank you for the analysis.
However, why wouldn't the rupee depreciate further after this new IMF deal?
The reason why PTI wanted a year before IMF was that PTI wnated demand compression first without decreasing spending to level which IMF would have demanded

This year spending has gone down but so have revenues given low imports and thus fiscal deficit is still at 5-6% which to IMF would have been unacceptable ...IMF would have wanted 4-5% whicg would mean another 1-2%/total 3% drop in growth rate rather than just 1% now ..

Than IMF wanted to pay off circular debt that would meant another 1-2% drop...a stand still for Pakistan or even retraction ...

Avoiding this was a miracle from PTI side
 
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Then i commend you brother. you should convince all your friends to follow suit. Look around you what people are doing. Anyone who can afford imports will go for it, Isn't it? Make these Imports out of reach of these people and may be it will cause local industry to develop alternatives and reduce imports
If the rupee has intentionally been devaluated to discourage imports (like Japan does) then it's good but I doubt it's just that.
 
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Rupee Printing has nothing to Do with Dollar Value going up and down, It only Effects the Inflation if it is not supplemented with equal rate of Economic growth.
Dollar value goes up when government decides to make it go up to control Imports(Make Imports more expensive) i.e when you constantly keep importing beyond your means and make massive trade deficit every year
And imports goes up because people have a lot of money and rupee is too over valued for local production to compete with!! And why do people have more money? Because you just printed it..!

If the rupee has intentionally been devaluated to discourage imports (like Japan does) then it's good but I doubt it's just that.
Goal is to keep inflation high enough to drive saving ...that is why you devlaue money to drive saving
By overvaluation Pakistan saving droped to half thus lack of capital availability
 
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To look things for future
1. Fiscal deficient
2. Current account deficit
3. Prime deficit
4. Real effective rate
5. Saving and investment to GDP
6. Exports and imports
7. Foreign investment
8. Debt to gdp
9. Tax/revenues
10. Govt sector corporation losses
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And ofcourse education and health refoms
 
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