Inflation Causes Rupee Decline: FBR Chairman

Pakistan's Federal Board of Revenue (FBR) Chairman, Rashid Mahmood Langrial, has attributed the long-term decline of the rupee against the US Dollar to inflation, weak productive capacity, and external pressures. In an article published in an Urdu newspaper, Langrial explained that fluctuations in the dollar rate ultimately impact ordinary Pakistanis as many daily goods and inputs are tied to international prices.

He clarified that the exchange rate reflects the relative value of a nation's currency, which is shaped by domestic price levels, productivity, and the country's ability to produce goods and services competitive on a global scale.

Langrial highlighted three primary factors responsible for the rupee's decline: domestic inflation, Pakistan's limited productive and export capacity, and external global pressures. On inflation, he noted that currencies often weaken when domestic prices rise at a faster pace than those in other countries. Pakistan has historically experienced significantly higher inflation compared to the United States, which, Langrial argued, gradually diminishes the purchasing power of the rupee over time.

Additionally, he emphasized the importance of Pakistan's production capacity as a major factor. He compared Pakistan to Vietnam, showcasing how a country's ability to produce more competitive goods and services for global markets can bolster its currency, whereas economies reliant on imports remain vulnerable.

Furthermore, Langrial pointed to external financial conditions and commodity prices as factors beyond Pakistan's direct control. He explained that rising US interest rates can prompt international capital to flow toward dollar assets, while higher oil prices can augment Pakistan's need for foreign currency due to the country's substantial imports of petroleum products.

Langrial emphasized that while foreign exchange reserves can cushion the country against such external shocks, they are not sufficient to entirely shield Pakistan from global market movements. He concluded that policy actions aimed at controlling inflation and enhancing the country's productive capacity are crucial in addressing the underlying issues, whereas global financial and commodity shocks remain uncontrollable.