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Burning billions

42 6 58

TODAY, we can find, fairly cheaply, an amazing variety of imports from all over the world in Pakistan: honey from Germany, vegetables from Brazil, and clothing from India. The government of Pakistan subsidises imports of luxuries for the elites by spending billions in foreign exchange to keep the price of the dollar low. Many different economic indicators show a pattern of consistent and maintained overvaluation of the rupee over the past several decades. In contrast, many competitors who started out behind us, like India, Bangladesh and China, have surpassed us in exports by keeping their currencies consistently undervalued.

Long-term cheap availability of imports has a well-known effect called the Dutch disease. Normally, Dutch disease strikes countries that are rich in resources (like oil). This makes it possible for them to earn foreign exchange cheaply, without learning how to manufacture world-class exports. When the exchange rate is too low, imports are cheap, and prevent the development of local industry. At the same time, exports decline because they are too expensive in the world market. The services sector enjoys a boom because services cannot be imported from foreign countries and must be provided locally. Over the past few decades, the Pakistan........

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