APPLIED ECONOMICS
FOR MANAGERS
GROUP MEMBERS
• Muhammad Fahad Farooqi (0007)
• Sadia Latif
(0002)
• Saira Khalid
(0001)
• Sana Riaz
(0004)
• Farwa Amjad
(0018)
MBA S1
DEVALUATION OF
CURRENCY IN PAKISTAN
MONEY VS CURRENCY
DIFFERENCE BETWEEN DEVALUATION
AND DEPRECIATION:
 Devaluation
 Depreciation
Pakistani currency devalues
or depreciates?
HISTORY ABOUT DEVALUATION
IN PAKISTAN
Printed
more
currency
notes
Unfavorab
le balance
of
payment
Increased foreign
debt
increased
inflationary
pressure
less savings
with producers
Decrease in
investment
Decrease in
employment
Causes of Devaluation:
•
•
•
•
•
•
•
•
•
•
Falling foreign currency reserves
Capital flight out
Unfavorable balance of trade
International ratings for credit
Speculation
War against Terror
Energy crises
Political instability
High inflation
High value of loan
IMPACT ON ECONOMY
Economist's
views
Good Impact
Bad Impact
IMPACT ON ECONOMY
•
•
•
•
•
•
•
Good Impact
Bad Impact
Impact on companies
Impact on Property
Resists immigration
Balance of payment crises
Boost demand for domestic products
IMPACT ON ECONOMY
• Considered as weakness
• Affect creditworthiness
• Devaluation cycles
WHY A COUNTRY WILL WANT TO DEVALUE ITS
CURRENCY?
 For boost exports
 To make imports expensive
 To correct BOT
 To boost aggregate demand
WHY PAKISTAN WAS UNABLE TO DRAW THE
BENEFITS OF DEVALUATION?
•
•
•
•
•
Due to inelastic exports
No value added goods/deal in less elastic goods
Major exports in raw form
Focus on political battles
Corruption
HISTORICAL DATA
ANALYSIS
Pak Rupee VS US Dollar
120
US DOLLAR
100
80
60
US Dollar
40
20
0
1990
1995
2000
2005
YEARS
2010
2015
2020
Pak Rupee VS EURO
160
140
120
EURO
100
80
Y-Values
60
40
20
0
1998
2000
2002
2004
2006
2008
YEARS
2010
2012
2014
2016
Pak Rupee VS British Pound
200
180
160
British Pound
140
120
100
Y-Values
80
60
40
20
0
1998
2000
2002
2004
2006
2008
YEARS
2010
2012
2014
2016
Pak Rupee VS Japanese Yen
16
14
12
YEN
10
8
Y-Values
6
4
2
0
1998
-2
2000
2002
2004
2006
2008
YEARS
2010
2012
2014
2016
Pak Rupee VS Riyal
30
25
Riyal
20
15
Y-Values
10
5
0
1998
2000
2002
2004
2006
2008
YEARS
2010
2012
2014
2016
Pak Rupee VS Indian Rupee
1.9
1.85
Indian Rupee
1.8
1.75
1.7
Y-Values
1.65
1.6
1.55
2007
2008
2009
2010
2011
2012
YEARS
2013
2014
2015
2016
SOLUTION TO
DEVALUATION OF
CURRENCY
Solution to Devaluation of
Currency:
Policies
Fiscal Policy
Monetary Policy
Fiscal Policy:
Fiscal Policies
Borrowings
Money Demand
and Supply
Foreign Direct
Investment
Development
BORROWING
• Increasing the Interest rates
• Interest rates and investment
• Borrowing and BOP/BOT
Borrowings
Balance of
Payment
Balance of
Trade
Balance Of Trade
• Surplus or deficit
• Part of Balance Of Payment
Years
1993-94 1996-97
Deficit in 45.9
72.5
Rs.
billion Rs. billion
2001-02
62 billion
• Devaluation for increasing trade
• Instead
– Reduce cost of production
– Export finished goods
2004-05
106
billion
2005-06
121.2
billion
2007-08
130.9
List of exports:
Knitted Fabrics of Cotton
Fish & Fish Preparations
Rice
Fruits & Vegetables
Spices
Oil, Seeds Nuts & Kernels
Raw Cotton
Ready-made Garments
Cotton Yarn
Synthetic Textiles
Carpets & Rugs
Leather
Crude Animal Material
Yarn Waste
Tulle, Lace Embroidery etc.
Leather Garments
Leather Gloves
Onyx Manufactures
Cotton Fabrics
Chemical & Pharmaceutical Products
Hosiery
Made-up Articles of Textiles
Bedwear
Synthetic Yarn
Towels
Tents & Canvas
Cotton Waste
Handicrafts
Cutlery
Machinery non-electrical
Transport Equipment
Sports Goods
Surgical Instruments
Manufactured Articles n.s.
Plants Seeds etc.
Ship Stores
HOW TO MAKE BOT FAVORABLE?
By boosting Exports:
–
–
–
–
–
Export agencies
Proper quality check system
Import only raw items
Prepare substitutes for imported goods
Control on smuggling
BALANCE OF PAYMENT:
All monetary transactions
Types Of Accounts In Balance Of Payment:
Balance of payments of a country has three types of account:
a)
Current Account
b)
Capital Account
c)
Official Reserve Account
Balance of Payment:
Year
1950-51
1954-55
1958-60
Amount
578 Crore 9.9 Crore surplus
surplus
surplus
Year
Amount
1999-2000 2006-07
1.14 billion 6.878
deficit
billion
deficit
1996-97
1997-98
3.28 billion 1.92 billion
deficit
deficit
2007-08
2008-09
16.8 billion 12.72
deficit
billion
deficit
2009-10
10.945
billion
deficit
Solution to Balance Of Payment:
• Importance to agriculture sector
• Stop taking international loans
• Encourage investment
Money Demand and Supply
• Purchasing Power Parity balance
Solution for
devaluation of
currency
Shift to
Depreciation
of currency
Increase
Demand of
currency
In own
country
Increase
interest rates
Directly
selling foreign
currency
Decrease
supply of
currency
In foreign
country
Purchase
foreign
currency
Decrease
interest rate
Directly buy
foreign
currency
Controlling excess money supply:
Open Market
Operations
Discount Rate
Reserve
Requirements
Foreign Direct Investment
Foreign Direct Investment:
FDI increase
Foreign
reserves
increase
Increase in
value of
money
Development:
Expansion:
Interest rate
decreased
Borrowings
increase
Demand
Increased
Deflation:
Interest rate
Increase
Borrowing
Decrease
Demand
decrease
MONETARY POLICY
Monetary
Policy
Budget
Policy
Foreign
Reerves
Gold
Reserves
Tax
Reformation
BUDGET
POLICY
SITUATION OF PAKISTAN:
SOLUTION FOR DEFICIT BUDGET
BUDGET
POLICY
TAX
REFORMATION
INCREASE
FOREIGN
RESERVES
TAX REFORMATION
TAX
Stable Currency
Registered +
Non Registered
Firms
Grenrate
Revenues
No Foreign
Debts
Favorable
Budget
Revenues >
Expenses
FOREIGN EXCHANGE
RESERVES:
SITUATION OF PAKISTAN:
ACCORDING TO STATE BANK OF
PAKISTAN
FOREIGN RESERVES AS A SOLUTION
Foreign
Exchange
Reserves
Influence
Exchange
Rates
Guarantor
For
Liabilities
Stable
Currency
GOLD RESERVES
Gold as a Resource of
Pakistan
SITUATION IN PAKISTAN
GOLD RESERVES :
AS A SOLUTION TO
OVERCOME DEVALUATION
QUANTITY THEORY OF MONEY
Quanitity of money
Value of money
Quantity of money
Prices in market
GENERAL EQUILIBRIUM THEORY
Real
Money
supply
Real
Money
Demand
ACCORDING TO IRVING FISHER, WHO PRESENTED
THE “EQUATION OF EXCHANGE”
P=
Where,
P = average price level
M = quantity of legal money
V = velocity of circulation of money
M’ = quantity of credit money
V’ = velocity of circulation of credit money
T = Total transactions
POLITICAL STABILITY
• Disrupth The Corruption
• Refined Policies
• Avoid Terrorist Attacks
• Keep GDP Positive
CONCLUSION:
All the suggested solutions can
help to overcome Devaluation
in Pakistan but the most
important factor is government
itself. if government make
effective fiscal and monetary
policies , devaluation can be
controlled.