GOVERNOR State Bank of Pakistan (SBP) Reza Baqir has admitted that higher inflation and taxes had crippled the masses and emphasized that steps should be taken to ensure that positive fallout of economic stability reached them. In a statement on Tuesday, he said lower and middle income classes of society have borne the bulk of the burden of adjustments from higher income taxes deducted at source for salaried workers, higher indirect taxes and higher inflation.
The remarks of the Governor have substantiated the widely-held view that inflation has largely been the offshoot of the lopsided policies of the Government which opted for record devaluation of rupee without any worthwhile positive impact on exports. Similarly, he also acknowledged that increased administered prices to reduce fiscal deficit in the public sector and unforeseen disruptions in food supplies also resulted into a hike in inflation and as a result difficulties for the general public. The Governor also pointed out that structural constraints on private investment, as reflected in ease-of-doing business indicators, had to be addressed further to stimulate private job creation and eventually raise income. Though the Government believes the steps it had taken made exports competitive, curbed expensive imports and given an incentive to domestic industries to compete with imports and resulted in a sustained improvement in the current account which has been the key driver of the increase in SBP’s reserves net of liabilities but the ground situation is different. We have not much surplus to export even if our exports have become somewhat competitive and incentives so far given to the domestic industry are not sufficient to offset negative impact of imports as there are reports of more and more industrial units closing down because of various reasons including higher taxes. The remarks of the Governor, however, indicate there is realization among policy-makers as to what went wrong but unfortunately the corrective measures are not being initiated with required urgency. This policy stands exposed in the case of policy rate that is highest in the history of the country hindering investment and growth of the economy. The disruption in food supplies are reflective of lack of foresight on the part of the authorities concerned as shortages could have easily overcome through timely imports and taking effective action against hoarders and profiteers. It is also time that the Government stops burdening the masses further and instead offers them some relief to enable them to have an honourable living.
