Fiscal stimulus need of hour

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AT long last, the Government has realized the need to initiate measures to stimulate the economy and this became evident from the joint news conference by the economic managers of the Government, led by Advisor on Finance, Revenue and Economic Affairs Dr Abdul Hafeez Sheikh, after a brainstorming session that Prime Minister Imran Khan had with his fiscal and economic managers. The decisions for the purpose include provision of additional incentives on housing and exporters loans besides provision of cash refunds in order to kick start sluggish economic activities. The Advisor was confident that the stimulus package would help surpass the envisaged GDP growth rate target of 3.3% for the current financial year.
The economic slowdown was a cause for concern for all as on the one hand it reflected poorly on the overall performance and achievements of the Government and on the other hand had serious implications for masses in terms of price-hike, squeezing employment opportunities and denial of basic facilities like infrastructure, utilities and access to medical and educational services. The compulsions of the Government are evident from the remarks of the Advisor who said their first priority was stabilization and now that the objective has almost been achieved, steps are being taken for moving economic wheel of the country. That the economy has achieved a degree of stability is also confirmed by the fact that the foreign exchange reserves went up by $1.2 billion in the last four months of the current fiscal year. Previously, the reserves were depleting at alarming pace but the process has now reversed and now these were building up with increased availability of dollar. The decision to provide a subsidy of Rs 30 billion to Naya Pakistan Housing Scheme is welcome as it would help bring down the ultimate cost for owning a house for the common man. However, keeping in view the ever-increasing number of applicants and aspirants no amount of subsidy would achieve the desired impact and the only solution to the problem would be to address factors that have led to record increase in cost of construction especially iron, cement and other construction material. This is also important if the Government was interested to pass on relief to all segments of the society and not just those who would get a house under the PM’s programme. Similarly, provision of subsidized loans of Rs 200 billion to exporters might also result in resolving some of the problems being faced by the exporters but what about investment which is declining mainly because of highest ever discount rate. The economy would get real stimulus if the State Bank of Pakistan reduces the policy rate and the Government jacks up developmental spending, which are going down at the moment. Whatever developmental activity we witness at the moment is due to the assistance provided by our friend China for projects under China-Pakistan Economic Corridor; otherwise both the federal and provincial governments have slashed down their development budgets. The decision to take more loans to clear the circular debt of the power sector is also not a wise approach as it reflects lack of concern to resolve the issue in a durable manner. It has repeatedly been identified by experts as well as concerned donors that genuine reforms and not increasing the rate of tariff or securing loans to pay back circular debt is solution to the challenges facing the power sector. What we need is investment in the sector to improve and upgrade the system and root out theft as plugging of the leakages can turn the tables. The order of the Prime Minister about creation of a special cell for integrated planning on demand and supply of essential commodities to control their prices is, no doubt, reflective of his concern about price hike and its impact on the common man. However, as pointed out to the Advisor during the news conference the record high policy rate of the central bank, peaking interest rates, currency depreciation, hike in oil, gas and electricity rates have much to do with the price hike and the phenomenon cannot be addressed just through administrative measures. Such measures can, of course, help in situations like we see these days as prices of vegetables and fruit have multiplied due to supply and transportation issues created by hauling up of thousands of containers by the government to tackle the challenge of protests and sit-in of JUI(F).