An economy cannot be made self-sustaining by repeatedly changing the price of its currency. Yet this is how Pakistan often approaches the problem: when exports disappoint, we look to depreciation; when imports rise, we look to restrictions; when tax revenues disappoint, we look for another tax. We keep adjusting the instruments while leaving the machinery largely untouched.

The deeper question is not whether the rupee should be stronger or weaker. It is whether Pakistan can build an economy capable of sustaining itself.

Self-sustainability does not mean self-sufficiency. Pakistan cannot, and should not, try to produce everything it consumes. It means possessing enough productive capacity, institutional credibility and foreign-exchange earning ability to participate in the global economy without repeatedly returning to crisis, emergency borrowing and painful adjustment.

Remittances can cushion Pakistan’s external weakness, but they cannot permanently substitute for domestic productivity.

Remittances can cushion Pakistan’s external weakness, but they cannot permanently substitute for domestic productivity.

A weaker currency can help an economy that is already capable of producing what the world wants. But depreciation cannot create factories, skills, technology, reliable electricity, efficient ports, competitive finance or predictable regulation. Where exporters depend heavily on imported machinery, energy and intermediate goods, depreciation also raises their costs. Where domestic inflation follows, part of the initial competitive advantage can disappear.

The exchange rate can therefore be an instrument of economic policy. It cannot be a substitute for economic reform.

Pakistan’s export problem is consequently deeper than the price of the rupee. Our export base remains concentrated, particularly in textiles and apparel. Bangladesh demonstrates the power of an export-oriented manufacturing sector to create employment and foreign exchange, while also showing why diversification eventually matters. Vietnam offers another lesson: its export........

© Daily Times