Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial says Pakistan’s inflation, weak productive capacity and external pressures are key reasons behind the rupee’s long-term decline against the US Dollar.
In an article published in an Urdu newspaper, Langrial explained that movements in the dollar rate eventually affect ordinary Pakistanis because a significant share of everyday goods and inputs are linked to international prices.
He said the exchange rate reflects the relative value of a country’s currency, which is influenced by its domestic price levels, productivity and ability to produce goods and services that can compete internationally.
The FBR Chairman said three major factors explain the rupee’s decline: domestic inflation, Pakistan’s limited productive and export capacity, and external global pressures.
On inflation, he said currencies tend to lose value when domestic prices rise faster than those in other countries. Pakistan has experienced substantially higher inflation over the decades than the United States. He argued that this persistent difference in inflation gradually erodes the purchasing power of the rupee.
He also pointed to Pakistan’s production capacity as another major factor. Countries that develop the ability to produce more competitive goods and services for global markets can support their currencies better than economies that remain heavily dependent on imports.
Langrial compared Pakistan with Vietnam. He also identified global financial conditions and commodity prices as factors beyond Pakistan’s direct control.
He said higher US interest rates can encourage international capital to move toward dollar assets, while higher oil prices can also increase Pakistan’s demand for foreign currency because the country imports large quantities of petroleum products.
Langrial argued that foreign exchange reserves can provide a cushion against such external shocks but cannot completely shield a country from global market movements.
He said attempts to control the exchange rate without addressing inflation and the country’s productive capacity can’t solve the real issue.
He concluded that inflation and insufficient productive capacity are areas where policy action can directly make a difference, while global financial and commodity shocks cannot be controlled.
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