EDITORIAL: A 59 percent year-on-year increase in the Overseas Investors Chamber of Commerce and Industry’s (OICCI’s) Business Confidence Index (BCI), calculated from a survey conducted throughout the country from May to July 2021, is no doubt very welcome news for the business community and the government, which explains why the prime minister didn’t waste any time in firing off his customary celebratory tweets. It appears that this fiscal year’s pro-growth budget, which stood the IMF’s (International Monetary Fund’s) contractionary structural adjustment prescription on its head, has done the trick and investors, both local and foreign, expect the next six months at least to be good for businesses and the economy.
This development speaks well of the government’s economic policies, especially since this was our first positive BCI reading since 2018, and sends just the right signal at just the right time. The economy is facing headwinds just two months into the new fiscal, the current account is dipping into red again because efforts to stimulate exports are pushing up imports even more, the rupee continues to take a battering, and FDI (Foreign Direct Investment) stats are still very worrying, just to name a few irritants, so it’s a very good thing that good signals about Pakistan’s business and economic policies are doing the rounds in the local as well as international press.
The challenge now will be keeping this momentum going. It’s appreciated that the government has been able to steady the ship, especially after the Covid lockdown scare, but it would do nobody much good if the headlines turn against us again by the time next year’s survey is out. And it is also true that this “tremendous turnaround” in business confidence, as everybody is rightly calling it, owes in no small measure to the fiscal and monetary stimulus packages conjured by the finance ministry and State Bank of Pakistan (SBP) like tax breaks, subsidies, incentivised lending to prevent retrenchment and cuts in the interest rate.
But what are we to expect when the effect of these measures begins to taper off? Real interest rates are still very much in negative territory – interest rate is less than inflation no matter which variety of the latter is considered – and there is no way that they can stay there indefinitely, so something extra will soon have to be done to keep the smiles on the faces of all the businessmen who have been celebrating since the passage of the budget. There is also news to suggest that talks about resuming the IMF programme are likely to produce results that will still require us to raise energy tariffs as well as the revenue target, something the finance ministry was trying to kick further down the road, and there are even suggestions that the resulting situation might push the central bank to increase the benchmark rate once this year and once early next year. Therefore, the subject matter of high-level tweets will have to shift from celebration to explaining the next steps very soon if this latest push is to be preserved.
Surely, both fiscal and monetary authorities know very well that the next phase of this cycle is already upon them. What has been achieved over the last year can be counted as a small miracle considering how trapped for space the Pakistani economy was and how the spectre of Covid and lockdowns sent shivers down the spines of businessmen and ministers alike. Authorities must now make sure that the expansionary environment is protected, and the best way to do that is to take all stakeholders on board when formulating the strategy about the way forward.
Copyright Business Recorder, 2021
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