Reform Time

There are signs of economic recovery; and it seems that the Covid curve is flattening (for the time being, at least). This is the right time to transit from relief mode to reform mode. The focus should now on heading towards a sustainable growth path. Relief essentially means to support against contraction. The economic contraction seems to be over. The economy needs a sustainable growth momentum. That is only possible by reforms, for instance, in energy and PSEs.

The Prime Minister himself approached the IMF to take an exception for construction package – amnesty and fixed tax regime. The IMF’s expectations were for the authorities at home to transit back to reforms once the worst is over. “As the crisis abates, the authorities’ renewed commitment to the reforms in the existing Extended Fund Facility—in particular those related to fiscal consolidation strategy, energy sector, governance, and remaining AML/CFT deficiencies—will be crucial to entrench resilience, boost Pakistan’s growth potential, and deliver broad based benefits for all Pakistanis”, said the IMF on 16th April. It is time to get back on track

Data is showing good signs. The stock market and real estate markets both are rallying due to a fall in interest rates and lower Covid cases. Electricity data suggests that the pre-Covid demand is back- monthly generation of NTDC system in June is higher than the same period last year. And there is a V shape recovery from the lowest point in April.

Imports are growing too which implies that the demand is picking. The current account in FY21 in all likelihood will surge from the last year. The foreign flows are coming in from multilaterals and they all expect the government to work towards reforms while the forex cover is enough to sustain growth for a year or so.

The farm economy is doing good with higher wheat procurement by provincial governments. Barring locust, there is no reason why the agriculture economy will not bounce back sharply. Other consumption indictors are encouraging too. Cement sales are up, two-wheeler sales are showing sharp recovery and there is premium on car sale.

This is the right time to take some tough decisions. Inflation outlook is good and passing on energy prices might not hurt much. The fuel adjustment on net basis is negative for the past three months. Since that impact is diluted, upward revision in electricity tariff might not hurt much. The government should do away from blanket to targeted subsidies in the sector.

PM took some bold decisions. In terms of lockdown, he stood against all the liberal media and political opponents to not encourage the lockdown. Now the numbers are on his side. He took a stand for his dream of constructing houses and has IMF’s nod on the construction package. It is now time to take a stand for the tough reforms in energy and public sector entities.