ISLAMABAD | The economic landscape of the nation is facing a dire predicament as the rupee continues its relentless slide against the dollar, triggering concerns of a looming disaster. The persistent depreciation, coupled with dwindling foreign exchange reserves and remittances, has cast a shadow over the economy, exacerbating the specter of inflationary pressures.

The ongoing devaluation of the exchange rate is poised to trigger a surge in prices across the board, particularly in the petroleum sector. Experts warn that a corresponding rise in fuel prices, including adjustments related to fuel price increases, is imminent due to the escalating costs of furnace oil and imported regasified liquefied natural gas (RLNG).

In the wake of this economic turmoil, both headline and core inflation are predicted to soar, potentially forcing an increase in the policy rate under the mandates of the International Monetary Fund (IMF). The projected hike in the policy rate aims to address the mounting inflation and stabilize the economy, albeit under the stringent conditions set by the IMF.

A grim scenario looms on the horizon, with fears of a steep "stagflation" becoming more pronounced. The convergence of diminishing GDP growth and a surge in Consumer Price Index (CPI)-based inflation raises the specter of stagflation, a challenging situation that could disproportionately impact the marginalized segments of society. The resultant effects on poverty and unemployment could be severe.

The exchange rate's persistent decline has breached a significant threshold, with the rupee crossing the Rs300 mark against the US dollar in interbank trading. This decline is attributed to heightened demand for dollars for various purposes, including import clearances and dividend payments, along with the imperative of meeting structural benchmarks set by the IMF as part of a $3 billion Standby Arrangement (SBA).

The breach of these structural benchmarks, particularly the deviation between interbank and open market rates, has raised concerns. The State Bank of Pakistan (SBP) and the Ministry of Finance have remained tight-lipped about the situation, offering no official comments on the matter. This departure from previous practices, where officials openly addressed economic challenges, has raised eyebrows.

The economic landscape has been further complicated by the transition to a caretaker setup. The appointment of Dr. Shamshad Akhtar as the Caretaker Minister for Finance and Dr. Waqar Masood as Advisor to the Prime Minister on Finance is yet to yield a division of responsibilities. With collective responsibility deemed inadequate, there is a growing call for a clearer distribution of roles and accountability mechanisms.

As the nation grapples with these economic challenges, the current account deficit has rebounded, reaching $1 billion for July 2023. This is attributed to decreased exports, dwindling remittances, and increased imports. The growing chasm between interbank and open market rates could further deter remittance inflows. Additionally, the Federal Board of Revenue (FBR) has struggled to meet revenue collection targets, creating further hurdles in achieving the annual goal of Rs9.4 trillion.

Amidst these daunting economic circumstances, the nation's policymakers face the pressing task of charting a path towards stability, grappling with the complex interplay of factors that threaten to upend the economy's delicate balance.

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