What is the Pakistani rupee worth?

Above is a quick chart for you showing the value of the Pakistani rupee versus Sterling from December 2012 to the 21st of February 2013.

On the 19th of December 2012 £1 bought Rs. 159.11, while on the 2y 1st of February £1 bought only Rs 149.72. So over a period of a couple of months, the Pakistani Rupee has gained 6% against Sterling.

Wow! Something must really have changed in the Pakistani economy over the past couple of months to justify the Rupees rise? Right? Well not really, actually not at all. The fall in the value of Sterling has more to do with expectations of the UK loosing its AAA rating, improvements in the outlook of the Eurozone and the US, and the appointment of Mark Carney as the new Governor of the Bank of England, who has suggested that rather than inflation targeting, the UK should switch to targeting nominal GDP. In short, while the "market" spent the last year or so focusing on the troubles in the Eurozone, they are now looking to the UK and realised that Sterling is overvalued.

So why do I bring this up?

Perhaps one of the most frustrating and irritating line of economic argument one may come across is how the fall in the value of the Rupee against the US dollar is somehow a barometer for economic success/failure.Social media is littered with lists highlighting how in Musharaf's time $1 was "only" Rs. 60. So what was so amazing about a dollar for 60 rupees? And why does the dollar hitting a hundred to so much panic?

Now, this is not to excuse the shortcomings of economic policy-makers that have allowed for vast fluctuations in the exchange rate. The fall in the value of the dollar in some respects is self inflicted  but also, the relative strength of the US dollar is also influenced by what is going on in the US itself and the wider global economy.

But the issue for me is the desirability argument. Why are we so obsessed with the value of the dollar as a benchmark for economic success?

This is just like pointing to the Karachi Stock Exchange and claiming that the rising index is big thumbs up for the Pakistani economy and policy makers.

Perhaps one of the most ridiculous statements regarding the value of the Pakistani rupee that I cam across recently was in the "I dream of a day, Pakistan"video when one of the dreams were that "I dream of a day when a Pakistani rupee equals a hundred dollars".

Well, I am sure that the affluent consumerist middle class would be very happy with such an exchange rate as the relative price of imports plummets, an overvalued exchange rate would make Pakistani exporters uncompetitive.

And this is exactly the point: Regardless of which way the Pakistani rupee moves, there will always be winners and losers. The falling rupee has allowed Pakistani exporters to remain competitive and blunt some of the effects of higher costs of running businesses in Pakistan in the face of power cuts, infrastructure shortages and perhaps most importantly terrorism and violence.

The other side of the coin is that a falling rupee makes imports more expensive. More rupees are required to purchase goods and services from abroad, and makes our foreign debt more expensive in rupee terms. As we import a large chunk of our energy such a crude oil from abroad, a falling rupee adds to inflationary pressure in the shape of higher import prices.

Now the fact that we have a wide gap between our exports and imports of goods and services, which is plugged mostly by remittances has more to do with imbalances within our economy and poor policy making.

However, with so much emphasis on the value of the rupee, looking back 5 or 10 years and dreaming about an ever appreciating currency allows both politicians and policy makers to ignore underlying problems and then declare success or failure based on whether the rupee has gained or lost value.

Japan most notably, after the election of their new Prime Minister Shinzo Abe, has nudged the Bank of Japan to loosen its inflation target and become more aggressive when it comes to monetary policy. The Yen has lost 16% of its value since he took office. The incoming Governor of the Bank of England has also suggested that Sterling needs to loose even more value to rebalance the economy.

The point here is that national pride should not be invested in the value of the Rupee itself. It makes for great headlines, talking points and rhetoric, but our obsession with the value of the Pakistani rupee only helps us to cover up our failure to deal with our economy as a whole.

Given the massive trade deficit, many would argue that the Pakistani rupee needs to loose even more value. And it probably will in the coming months.

Rs. 120 to $1? That's just the price at a particular time of the day for a currency. Treat it as such.

Rs. 60 to $1 was no magical benchmark that we should aspire towards, just because it neatly fits into the anti-incumbency narrative that we are encouraged to jump on. 

The Rs. 28 trillion loot in Swiss Bank's fallacy

If something is too good to be true, it probably isn’t. I am not referring to the fantastical $45 Billion, Abu Dhabi group investment, plus tallest building in the world in Karachi news from a few days ago, will come to that some other time.

Really? Perhaps Google to fact check?

Today, once again, reading through the Political Economy section of the TNS, I came across another sermon on corrupt politicians and ill-gotten wealth, ending predictably with references to Jinnah and Iqbal.

Alauddin Masood couples some facts from some recent reports with the ubiquitous and sensational statement that:

The amount is so huge that it prompted a Swiss banker, recently retired, to say: “Pakistan is a poor country but Pakistanis are not” because they have “28 trillion (28,000,000,000,000) of Pakistan rupees deposited in Swiss Banks.”

http://jang.com.pk/thenews/Feb2013-weekly/nos-17-02-2013/pol1.htm#2

Now this so called “Swiss Banker” has alteast retired now. Over the last couple of years we have been inundated with email forwards, and Facebook shares about this mysterious Swiss Banker and the Rs. 28 trillion figure.

In September 2011, it wasn’t a retired Swiss Banker, but a director Swiss Bank who stated that:

Director Swiss Bank said ‘Pakistanis are poor but Pakistan isn’t a poor country.’ He added that 97 billion dollars of Pakistan is deposited in respective bank and if this money would be utilized for the welfare of Pakistan and its people then Pakistan can make tax less budget for 30 years, can create 60 million jobs, can carpet four lanes road from any village to Islamabad, endless power supply to five hundred social projects, every citizen can get 20000 rupees salary for the next 60 years and there is no need to see IMF and any World Bank for loans.

http://www.pakistantoday.com.pk/2011/09/18/news/national/pakistan-has-97-billion-dollars-in-swiss-banks-director-swiss-bank/

What the?

A few problems are obvious with these assertions.

First, there is no such thing as a “Director Swiss Bank”.

Second, there is no such thing as a Swiss Bank.

Third, why would any Swiss financial official compromise on Switzerland’s reputation for privacy by making such statements?

Fourth, according the Swiss law, financial privacy in Switzerland is akin to attorney client privilege. Why would some Director/Retired Swiss Banker break Swiss laws to make such statements?

Fifth, even if this Swiss Banker is genuine, how would he possibly know the names, source and nationality of all deposit holders in every Swiss Bank?

Sixth, why would he make such normative statement, about whether Pakistan is a poor country or not, and how many years of salary each Pakistani would receive and that to calculated in Rupees?

Alauddin Masood’s article is titled:

If our rulers bring back the money stashed in accounts abroad and invest it in Pakistan, we can have tax free budgets for almost 30 years

What the......

Now many things are wrong with such statements.

First of all repatriating money back into Pakistan doesn’t equate into investment. Second, the assumption that all monies held abroad is ill-gotten, is not necessarily true. Third, what is the relationship between investing the money in Pakistan and thirty years of tax free budgets?

It is one thing to have such commentary shared in social media and online forums, but it’s quite different when it is used as a tool for shaping or justifying economic policy.

But these statements are such an incredible farce that they are also used in India, where articles were published with the title, Indians are poor but not India: Swiss Bank:

"Indians are poor, but India is not a poor country," says one of the Swiss Bank directors. He says that "280 lakh crore (280,00,000,000,0000) of Indian rupees is deposited in Swiss banks which can be used for “taxless” budget for 30 years. It can give 60 crore jobs to Indians. The other uses of the money: From any village to Delhi 4-lane roads. Forever free supply to more than 500 social projects. Every citizen can get monthly 2000 for 60 years. No need of world bank and IMF loan.

http://www.indiatribune.com/index.php?option=com_content&view=article&id=5058:indians-are-poor-but-not-india-swiss-bank&catid=119:business&Itemid=493

Shocking surprise! Looks like this Swiss Bank director likes to say exactly the same thing to every developing country!

I find such rhetoric frustrating and exhausting.

Economic policy making is difficult enough, but once public opinion is shaped by such rhetoric it is very difficult to design and implement policy with politicians and media personalities harping on with such ludicrous accusations.

Now, you may retort that hold on, while these statements might not be true, the fact remains that politicians are corrupt and they have probably stashed away large sums of money in Switzerland. That is true, and no one is denying that. However, things are bad enough that we don’t and shouldn’t need to rely on made up stuff.

Why do we need to share pictures of atrocities in other countries and pass them off as pictures of victims of terrorism in Pakistan or other Islamic states? Were the victims of atrocities that we are passionate about not photogenic enough?

Are our corruption estimates not sexy enough that we need to come up with Rs. 28 trillion?

So spare the rhetoric and stick to facts. At least one would expect that from writers offering sermons on corruption and budget policy in national publications. 

The Pakistani people, they matter!

In May 1968 a young Iraqi geologist, Farouk al-Kasim, arrived in Oslo, Norway. Al-Kasim’s youngest son, born with cerebral palsy, could not receive the case he required in Iraq. Along with his Norwegian wife, who het met while studying in the United Kingdom, Al-Kasim arrived in Oslo, with little idea of what lay ahead.

While waiting for a train to his wife’s hometown, Al-Kasim made his way to the Ministry of Industry to ask for a list of oil companies operating in Norway. Instead, his unannounced visit turned into a job interview! At the time, Norways oil administration comprised of just three officials. Foreign petroleum companies were pouring money into North Sea oil exploration, but as yet had not discovered any oil. The Norwegian government was looking for a skilled and experienced individual to give some insight into the massive amount of information pouring into the oil administrator’s office.

A decade earlier the Geological Survey of Norway had declared that there was little chance any oil would ever be discovered. However, while analysing the information available, al-Kasim concluded that the discovery of oil was just a matter of time.

By 1969, several exploration companies had left Norway after failing to make any significant discoveries. However, in December 1969, Philips Petroleum, the last remaining explorer discovered one of the world’s largest oil reserves, the Ekofisk field.

The Norwegian government however, was completely unprepared. They were no plans, policies, regulations and neither a vision for the Norwegian oil industry. It came down to al-Kasim, to prepare a blue print for the future of the Norwegian oil industry. What has followed since is the development of some of the world’s largest oil fields, innovation in oil exploration and extraction technology and the creation of world beating ancillary industries that has allowed Norway to make the most of its oil reserves.

Perhaps most importantly, Norway managed to avoid the infamous “ Dutch disease”, that booming commodity exporters experience. The rest as they say is history.

The knowledge, expertise and skill of an individual and the dedicated support he was offered by his colleagues, allowed Norway to leverage its comparative advantage in the petroleum industry. The mere presence of oil was not the secret behind Norway’s success in building an affluent economy. Instead it was the presence of expertise that allowed it to harness their discoveries true potential.

This is a lesson that we in Pakistan must realise sooner rather than later; that our strength lies in our people, who at present are largely ignored as a useful resource in Pakistan’s development. We risk wasting the advantages of our demographic dividend by failing to make adequate and necessary investments in young people, to support their learning and helping them achieve their individual aspirations.

While we celebrate the presence of the yet unexplored Thar Coal reserves and the possible mineral wealth across Baluchistan etc, the inability to efficiently exploit and commercialise these resources insures our continued underdevelopment. Whether there exploitation is desirable as proposed is also debatable. 

As our population expands, water stress, climate change, the depletion of domestic gas production, desertification etc, will pose challenges that we are unprepared to face. Its only our ability to manage such challenges which will determine whether we are able to leverage a challenge into an opportunity.

The use of what we have, in the best possible way, will allow Pakistan to develop in a manner which is sustainable and does not repeat the mistakes of the past. Anyone following the smog that chokes Beijing at the moment would appreciate the short-sightedness of unplanned electricity generation using coal.

The only resource that we possess in abundance is the expanding numbers of our young people. Investments in education, in schools and colleges, in playgrounds and in teachers must take place now. For only the can deal with many challenges that Pakistan faces. Otherwise at best, the demographic dividend of a young population will be squandered or at worst, the finite natural resources we have will be wasted due to poor decision making.

I have said so before, but it must be repeated. More attention must be given to basic education, especially 

for girls. Investments in good teachers and raising the status of teaching must go hand and hand. The social benefits of basic and primary education are much higher than higher education. While giving importance to Higher Education is all well and good, however unlike the example of Norway above, we in Pakistan don’t only need to make sure we make good decisions at the macro level, but we also must enable individuals to make better decisions. Vocational training must be encouraged on the one hand, but at the same time efforts must be made to insure that it is not considered second tier to academic pursuits.

Without al-Kasim, Norway may have taken a totally different path. Likewise, despite our geographic advantages, natural resources and expertise, without an educated, skilled and aspirational young population, Pakistan too will continue to pay the price for poor decision making. 

Education is not just about how many As you score

The following blog was originally published in Tribune Blogs, 4th Feb, 2013.

Education is not just about how many As you score

Recently, the British Education Secretary announced that students starting their A’ levels in England from fall 2015, will return to the previous system of an “all or nothing” exam at the end of two years of study.

Eventually, these changes will not only impact exams in England, but will also trickle into tweaks to the manner in which Cambridge International Examinations and EdExcel International exams are organised. It is still not clear whether Wales and Northern Ireland will adopt these changes; Scotland has a separate system.

The current system of units or modules has been criticised for allowing examination retakes and grade inflation. Policy makers hope that a return to the two-year exam cycle will help make A’ levels more rigorous and help prepare students for higher education. Universities have criticised the quality of GCSE and A levels in the UK, rather than preparing students for higher education or vocational training; A’ levels train students to succeed in exams.

This is a criticism that may sound familiar in Pakistan.

Over the past fifteen years, the mushroom growth of tutoring and a proliferation of schools and colleges that judge their reputation and success on exam results, a vicious cycle has been created where students seem to appear in exams perpetually during their O’ and A’ levels. A perverted mix of peer pressure, aggressive advertising and devaluing education to a series of grades, ensures that each year students are nudging more and more towards sitting exams in a wider array of subjects.

Whether it is in the UK or Pakistan, tinkering with syllabuses and changing exam timetables is a swift and neat way to “reform education”.

Politicians love such interventions as these are easily implementable and success can be declared once the changes are made. However, the outcome of these changes is someone else’s headache.

Over the past couple of years, a lot has been made of abolishing foreign qualifications and implementing a uniform curriculum across the country. Such rhetoric means well, but like the changes to A’ levels announced in England today, such measures don’t reform – they just tinker with the status quo. Across the globe, the best educational systems cater for a devolved curriculum and provide greater focus on pre-school and primary education.

An example would be that of Finland, where the system caters on fewer exams, recommends little or no homework, and recruits teachers from amongst the best candidates. In Pakistan sadly, debate on the curriculum revolves around how much importance the chapter on jihad should have, whether illustrations of boys and girls playing together is Islamic or not, or whether the chief minister’s message to students should appear at the front or the back of the textbook

Adopting the Finnish system of education or any other “model” is still a very far off goal. A massive number of school age children do not attend school and our first goal should be to ensure that no child is deprived of education. However, for education to be “fixed” we require a change of attitude towards what we mean by an “education”.

This will have to start amongst the affluent, partly because education providers for lower income groups aim to emulate their affluent peers. If the schools at the top consider exam success as the gold standard of a quality education, the same attitude trickles down, shaping the attitudes of both schools and parents.

While examination success is indeed important, the appropriateness of what we are taught and how we are taught is also important. Some imperfect albeit illustrative examples include students who complete O’ and A’ levels, but then struggle to appear in Central Superior Services (CSS) exams due to the perception that they favour the pedagogy of matriculation and Faculty of Science (FSc) students. Students hoping to attend state-run medical schools are encouraged to complete FSc rather than A’ levels as it is believed that it provides better preparation for competitive admission tests.

It is here where an examination focused approach towards education fails us. Education should aim to widen choice and facilitate flexibility.

Students should not have to bear the costs of short-sighted educational reform choices; their choices from five years ago should not impact their higher education pursuits in the present.

We must appreciate that education reforms take a long time to implement, and that changes to exams schedules or efforts to unify curricula (as favoured by politicians) will have limited impact. Instead, investing in teachers, focusing on basic and primary education, and recognising that the learning requirements of each and every child is unique, will truly usher in a much needed reform.

Utopian idealism? Perhaps. But the first important step must be the recognition by policymakers, education providers and parents, that such concerns are worthy of consideration.