KARACHI: Describing it as a “ray of hope for the common man”, the business community has welcomed the historic judgment of the Supreme Court of Pakistan and said the decision has created a positive sentiment in the markets.
President of the Pakistan Businesses Forum (PBF) Mian Usman Zulfiqar lauded the judgment and said in the past rulings the doctrine of necessity prevailed but on Thursday “for the first time the judges completely stood by the Constitution and gave a historic judgment”.
Talking about the future, he said the latest judgment would serve to ensure that in future government functionaries are cautious while taking decisions relating to the Constitution.
He said the Supreme Court’s verdict had set the precedent that the Constitution is supreme and that no one is above the law.
Mr Zulfiqar said the apex court’s ruling would give confidence to investors and the economic wheel of the country would get the much-needed impetus. “Today we witnessed that rupee got strengthened against the dollar, appreciating by (about) Rs 4 in a single day”.
Commenting on the policy rate, the senior PBF office-bearer criticised the State Bank of Pakistan’s decision of increasing the rate by 250 basis points to 12.25 percent, stressing that the cost of doing business, which is already high due to the volatile exchange rate, will further come under pressure.
“I fail to understand how the policy rate will curb food inflation as the high interest rate and rupee depreciation will increase the cost of doing business,” he said.
With a touch of disappointment in his tone, the PBF president said the SBP governor had unfortunately assumed the role of a “silent spectator” on the issue of rupee-dollar parity, especially in the last couple of days.
“Now it’s been proved that the idea of a free float exchange rate is not working. The State Bank of Pakistan should play its role and devise effective strategy to stop further devaluation of the rupee which is having a lethal impact on the economy and the inflation... It’s enough now,” said Mr Zulfiqar.
The value of dollar in the interbank market has touched miserable levels in the last two months. SBP must clarify its position, being the regulator, he said.
“It has to be understood that the share of exports in GDP stands at around 10 percent while the rest 90 percent is local trade and imports,” he said. “Therefore, the devaluation is hurting (the economy) and it has reached an unbearable level now.”
If the economy does not return to the radar of those at the helm of affairs, then a full-fledged crisis will strike in the July-August period of next fiscal year.
Mr Zulfiqar also urged the Chinese government to bail out Pakistan and provide soft loans so that the country may get out of the rupee pressure permanently.
“It may also be noted that our total debt and liabilities stand at Rs 51,724.5 million in the second quarter of 2022, posting an increase of 15.5 percent from the previous quarter. The government’s domestic debt stands at Rs 26,746.9 million, and public sector enterprises debt total Rs 1,503.8 million,” he said.
Total external debt was recorded at Rs 21,004 million, of which the government debt was Rs 14,810 million, non-government external debt was Rs 4,222.9 million, and the country’s debt to the IMF stood at Rs 11,885.4 million, and the inter-company external debt from direct investors abroad was Rs 782.27 million.
Repatriation profits of foreign investors have increased from $1.05 billion in July-Feb 2020-21 to $1.14 billion during the corresponding period of this fiscal year. Pakistan received foreign direct investment of $1.788 billion in the first eight months of this fiscal; however, during the same period FDI worth $531 million was pulled out of the country.
The net FDI was $1.25 billion. During the same period foreign portfolio investment of $590.3 million was received additionally. The FDI is a fluid investment the investor takes out after making profit.
“If we deduct the repatriation of $1.05 billion by the foreign investors from the FDI of $1.25 billion, then the net FDI comes to $20 million only. This means that we need FDI of over $1 billion per quarter to even out the repatriation of profits by foreign investors.
“We are not generating enough revenues to finance our expenses. The increase in revenues is not in line with increase in expenses,” he added.
Meanwhile, chairman of the National Business Group Pakistan (NBGP) and president of the Pakistan Businessmen and Intellectuals Forum Mian Zahid Hussain said the historic decision of the Supreme Court has created a positive sentiment in the markets.
He said the prospects of a new government led by leader of the combined opposition Mian Shehbaz Sharif have raised strong hopes for an improvement in the economy and in the overall situation, he said.
Hussain said the stock market and the rupee have appreciated due to positive sentiments in the market.
He said that Prime Minister Imran Khan’s “misguided economic policies” and his political manoeuvres have hurt the economy badly and affected the GDP drastically, which could fall far below four percent. Important institutions should play their role in bringing down the political temperature to save the economy from further losses.
He said that wrong economic policies, irresponsible spending, patronage of failed state institutions, rising industrial costs, inflation and the failure to introduce reforms in the tax system have served to speed up the decline in the economy.
Pakistan has to repay $12 billion in loans this year but it lacks the resources to fulfill the obligations, he said. According to official data, the growth rate was 5.6 percent last year. The recent 2.5 percent hike in interest rates will further reduce GDP and exports.
The war between Russia and Ukraine is also playing a role in increasing inflation and the sharp rise in oil prices was increasing the oil import bill while the decline in crop production was creating a crisis that would cost billions of dollars, said Mr Hussain.
The share of oil and gas in Pakistan’s import bill is 30 percent which is jacking up the bill drastically.
Inflation and the sharp rise in energy prices have led to the ruination of purchasing power of the people, which has resulted in a steady decline in demand in the markets.
Hussain said if the IMF’s grievances were not addressed and the breach of promises was not rectified and the Fund did not restore its loans, then the situation would deteriorate further as expensive loans would have to be taken from other sources.
As the dollar becomes more expensive, so does the cost of production and exports. The cost of manufacturing goods is rising and the pre-existing inflation in the country is rising sharply too, he added.
Copyright Business Recorder, 2022