State Bank’s optimism

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AS both the economy and the people are under great stress and strain due to a variety of factors, the State Bank of Pakistan (SBP) has expressed optimism that the economy would grow strongly in the range of four to five percent in the current financial year, but warned of challenges including exponentially high global commodity prices, elevated import payments, increase in utility tariffs, higher inflation and expansion in services deficit.

In its annual report, the central bank maintained that momentum in growth is evident from the significant increase in machinery and raw material imports, continued expansion in consumer financing and strong uptrend in domestic sales as seen from high frequency demand indicators during the initial months of financial year 2022.

The measures initiated by the Government both before presentation of the budget for the current fiscal year and in the budgetary proposals surely sparked confidence that the economy would grow satisfactorily during the year.

These included packages and incentives for the construction and agriculture sectors and an increase in the development spending.

However, the situation has dramatically changed in recent months as drastic measures introduced by the Government at the behest of the International Monetary Fund (IMF) would negatively impact the pace of growth.

Under pressure of the IMF, the SBP has raised the benchmark interest rate by 1.5 percentage points to 8.75%; rupee is becoming worthless; prices of POL products, which were already high are slated to increase further because of the decision to increase the rate of PDL by four rupee a litre every month; and both electricity and gas tariffs are poised to be revised upward as per understanding with the Fund.

These measures would definitely increase the cost of doing business and render our products and exports uncompetitive in the international market and that too at a time when there was a need to support them.

The Bank has cited increased allocations for development in the budget but unfortunately only a few days back, the Government has announced a significant cut in development spending in the new scenario and this would obviously affect the overall growth.

The State Bank has noted that addressing deep-rooted structural impediments is crucial for sustaining and improving the current growth momentum.

It has identified these impediments as decline in the yield of important crops (especially cotton); insufficient export coverage of imports, low and declining productivity of labour, stagnant tax-to-GDP ratio, anemic investment-to-GDP ratio, and the rising fiscal burden of the power sector.

But the question arises who will remove these impediments and when a beginning towards that end would be made as the existing actions of the government are quite in the opposite direction.

The Prime Minister has a vision for industrialization of the country as this is the surest way to realize his dream of making Pakistan a true welfare state but how can we attract required investment and sustain industries when there is no predictability in the economic policy.

The Bank also hopes the supply and demand channels were expected to contribute to the higher growth outcome but this expectation is unlikely to materialize as income of people is squeezing because of skyrocketing inflation.

Growth comes at the strength of domestic production and not due to free for all imports as by doing so we are supporting farmers and industries of other countries at the cost of our own economy.

It is regrettable that instead of coming out with a concrete plan of action to curb unnecessary imports, the authorities are planning to meet the expansion in the import payments through ‘a consistent’ increase in remittances and ‘export receipts’.

There are also other factors that could impede the growth of the economy and only a review of the government’s policy can avert a slowdown.

The opposition is flexing muscles to start an aggressive protest campaign including a march on Islamabad, which could affect economic and commercial activities.

Similarly, it is because of failure to take timely decisions for procurement of LNG that the country is facing the prospects of severe gas shortage during the winter when the Government proposes to cut supply for the industry as well.

Under these circumstances, one fails to understand how the growth target for the current year would be met.

 

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