Printing notes not the solution to country’s economic conundrum

ISLAMABAD: Tariq Sayeed, Vice President Confederation of Asia-Pacific Chambers of Commerce & Industry (CACCI)  said that the government resorted to continuous printing of currency notes to generate liquidity to meet its expenses in financial year 2012-13, causing pressure on macroeconomic stability and accelerate core inflation to 11.4 percent in June 2012.

Printing excessive currency notes on the one hand and continuous borrowing on the other is leading to higher inflation and increment in general price level, which is deepening the misery of the entire country, he said in a statement issued here on Saturday.

He said that Pakistan has printed new currency notes of Rs.592 billion, during Jun 2011 to July 25, 2012, which is not the solution to overcome the problem, adding that the government resorted to continuous printing of currency equivalent to 2.4 percent of GDP to generate liquidity to meet its expenses in financial year 2012-13, which caused pressure on macroeconomic stability and accelerated core inflation to 11.4 percent in June 2012.

This is because of the high government borrowing from State Bank of Pakistan and Commercial Banks. The country’s external debt dynamics are challenging, with $4.6 billion of debt repayment due in FY13.

He added that we have received a record inflow of remittances of US $13.5 billion in 2011-12, showing growth of about 18 per cent compared with $ 11.2 billion received during the preceding fiscal year (2010-11), which has effected economic growth positively and significantly to stabilize the economy, otherwise the situation would have been even worse.

Sayeed suggested that Government borrowing from State Bank and Commercial Banks must be discontinued in order to avoid further devaluation of the rupee in the market. We must focus on reducing external debts and exporting our products and services to other countries in order to support the economy, besides attracting foreign investment and focusing on remittance.

He said that unfortunately, the State Bank of Pakistan is being treated as a printing press for making currency notes worth billions of rupees every day when it should be taken as an institution providing monetary stability for the country. This simply shows lack of proper economic planning.

He asserted that in order to protect the loss of foreign reserves and to avoid crippling of the country’s economic productivity, Pakistan should avoid printing inordinate money, besides minimizing budget deficit and taking care of expanding on productivity areas, and providing secure environment to attract foreign investment and sustain the domestic economic activity profitably.

To stabilize the economy, an important aspect is tax collection of every tax-payable citizen of Pakistan as the state loses billions of rupees in tax evasion, besides tax collection from all sectors of the economy, including agriculture income to broaden the tax base, he added.