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Last update: Tue, 24 May 2016 02pm

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Contrary to the expectations that State Bank would not change gear at this point of time, its Monetary Policy Committee (MPC) has opted to ease monetary policy stance albeit only modestly. In its Monetary Policy Statement (MPS) released on 21st May, 2016, it has been stated clearly that the decision to reduce the policy rate by 25 basis points from 6.0 percent to 5.75 percent was taken after detailed deliberations which implies a thorough discussion of the subject or differences within the MPC about the rate cut in the meeting. Such an inference could also be made by the coverage of MPC which does not provide a clear-cut answer for the change in the direction of monetary policy. On the positive side, macroeconomic conditions, according to the SBP, continue to improve. Headline CPI inflation would remain below its FY16 annual average target of 6 percent. Real GDP growth would also remain below its target of 5.5 percent but is likely to exceed its FY15 outcome of 4.2 percent. Current account deficit is likely to shrink to the previous year's level of one percent of GDP and foreign exchange reserves are projected to maintain an upward trajectory. As credit to private sector increased by Rs 314.7 billion during July-March, FY16 compared to Rs 206.0 billion in the corresponding period last year, GDP growth in FY16 is "expected to provide the needed sustainability in growth trajectory and the basis for further improvement in FY17." Stability in balance of payments is due to a combination of favourable developments including steady workers' remittances and low oil prices in the international market. FDI is also projected to increase as the work on projects under the CPEC gains momentum.
At a time when most people are struggling to make ends meet, members of Parliament have recommended a phenomenal increase in their own salaries and allowances. The National Assembly adopted the other day a report prepared by its Standing Committee on Rules of Procedure and Privileges asking for more than a three-fold increase in the salaries of members and presiding officers of the two houses. This they want despite a substantial increase during the recent years, and receiving far too many generous allowances.
According to a Business Recorder exclusive, there is disagreement between the Ministry of Finance and the Ministry of Planning, Development and Reforms on the allocation for next fiscal year's Public Sector Development Programme (PSDP) with the former suggesting 655 billion rupees and the latter between 900 and 925 billion rupees. A lower outlay suggested by the Ministry of Finance is premised on its projected revenue for the year and the fiscal deficit agreed with the International Monetary Fund (IMF) during the recently successfully concluded eleventh review under the 6.64 billion dollar Extended Fund Facility (EFF) which, in turn, would guarantee the release of the second last tranche as well as the final tranche. The Planning, Development and Reforms Ministry is not part of the negotiations with the Fund and is mainly focused on the PSDP and not on macro indicators.
The National Assembly passed the Twenty-second Amendment Bill, 2016, on Thursday changing qualifications and procedures for the appointment of Chief Election Commissioner (CEC), commission members and some other measures aimed at addressing issues creating unsavoury electoral controversies. The bill has been under discussion for quite some time in the Parliamentary Committee on Electoral Reforms with active participation of the PTI, vociferous critic of the Election Commission of Pakistan (ECP). Its unanimous passage raises the hope that the next elections will be largely free of allegations of fraud.
Pakistan-US relations appear to be passing once more through a lean patch as the US House of Representatives has imposed strict restrictions on aid to Pakistan while the US Senate has blocked using American taxpayers' money to subsidise the sale of F-16s to Pakistan. This was confirmed by Advisor on Foreign Affairs, Sartaj Aziz, the other day when he revealed that the Pak-US relationship in the last three months has been characterised as a strain. Aziz defiantly responded to the rejection of the agreed terms of the F-16 deal by asserting that Pakistan would seek the F-16s from elsewhere if the measure was not reversed. The US administration of President Obama is trying to persuade the Congress by arguing that the measures would create further problems in Washington's difficult but important relationship with Islamabad. The US State Department has been at pains to reassure Islamabad that Washington stands committed to helping Pakistan. However, these sweet nothings from the administration notwithstanding, these developments, though not unexpected for informed observers, spell trouble ahead for the Pakistan-US relationship. Apart from the F-16 issue, which may not offer easily available alternative options despite Sartaj Aziz's brave words (the only alternative on offer so far being an upgrade of the existing F-16 fleet by Turkey), the issue of civilian aid and the outstanding dues on account of the Coalition Support Fund are all in limbo. Pakistan needs the US despite the twists and turns historically in this oft-troubled relationship. Putting all our eggs in the China basket as an alternative may not serve the country's interests. The US Congress has imposed three conditions on the release of 450 million dollars in aid. First, the US Congress wants Pakistan to act against the Haqqani network; second, the US Secretary of Defense will have to certify that Pakistan is not using its military or any funds or equipment provided by the US to persecute minority groups seeking political or religious freedom; third, and perhaps most importantly, the sense of the House resolution adopted declares Dr Shakil Afridi a hero for helping track down Osama bin Laden and wants his unconditional release.
Money whitening Voluntary Tax Compliance Scheme (VTCS) launched with great fanfare by the government to document retail businesses in the country has finally been rolled back due mainly to extremely poor response from the business community. The scheme, approved by the National Assembly, had come into effect w.e.f. 1st February, 2016; and it was extended a number of times to gain the interest of traders. It, however, seems to have miserably failed to achieve the desired objectives. At the time of launch of the VTCS, Finance Minister Ishaq Dar was so sure of its success that he had expressed the hope to net one million traders. However, the response to the scheme was so poor that only 9,020 traders had availed themselves of the carrot offered by the government and contributed a meagre Rs 850 million until April 30, 2016.
Addressing a seminar "Building for Tomorrow" organised by General Electric (GE) on 17th May, 2016 in Islamabad, Minister for Planning, Development and Reforms, Ahsan Iqbal asserted that the country could not achieve economic stability due to political instability, inconsistent and outdated policies and disjointed governance in the past. He argued that those who fail to embrace change will be wiped out and those who embrace change will be the beneficiaries. "If you look at Pakistan, we have not done as bad as many of us would like us to believe. We have missed many opportunities in the past and if we summarise those missed opportunities we can attribute this story of dropped catches to three or four factors," he added. Japan, South Korea, China, Malaysia, Taiwan, Singapore, Indonesia, Turkey and India ensured political stability and policy continuity and were able to reap the benefits. In Pakistan, we were more involved in playing political games and lost sight of economic gains. Countries that learnt to be more competitive by enhancing productivity, better quality and fostering innovations could win the battle. Pakistan had old infrastructure as investment was not made in energy, physical or human infrastructure. While the successful countries adopted collaborative platforms for governance, Pakistan persisted with silos and disjointed platform of governance.