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Will PTI’s devaluation decision worsen Pakistan’s trembling economy?

In his latest vlog, Vicky Agha analyzes the ongoing currency crisis in Pakistan. He seeks explanation while giving an insight on how the recent devaluation by the PTI govt will widen our trade deficit gap. PTI’s recent devaluation of the Pakistani rupee against US $ requires some explanations by the government that what were the objectives of this decision, what were their plans before forming the government and now what impact will this devaluation have on our balance of payments or trade deficit. First of all, it is pertinent to understand that our economy is linked with the dollar and our imports are capital-based imports. So if we want to encourage our exports through this devaluation it means that we will be increasing our cost of production because the raw material we use is imported. Secondly, the devaluation would mean that our exports will be less profitable because our buyer would be purchasing the same in less cost as the govt’ s decision has straightened their purchasing power. This means that our units will be consumed in larger quantity but the real impact in terms of finances will not be real. One should understand that our imports structure is capital based so the goods we import are mainly petroleum, chemicals, metals, industrial raw material, and heavy machinery which in total amounts to US$ 60 billion while our exports stand at $22-23 billion USD. Thus this devaluation will actually result in widening of this gap. Another major problem that this decision will bring is a blow to the purchasing power of our labour class which will impact our overall social lives. Therefore this decision by the govt lacks clarity and we need to know what objectives the govt eyes through this devaluation of the currency.

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