EDITORIAL: There is overwhelming evidence that in spite of a high growth rate in the current year other macroeconomic fundamentals need urgent remedial measures, including: (i) foreign exchange reserves today are less than a month and a half of imports accounting for signs of difficulties being faced by importers in getting their letters of credit negotiated that will strengthen the International Monetary Fund’s (IMF’s) argument to sustain a contractionary monetary policy which, in turn, would negatively impact on credit procured by the large-scale manufacturing sector, thereby lowering domestic productive activity and raising unemployment levels.
The resulting outcome of the IMF measures is likely to be a lot worse for the general public than in 2019 soon after the staff-level agreement on the Extended Fund Facility programme was reached on 12 May — a policy that continued till the onset of the pandemic when monetary easing had to be resorted to and was later followed adoption of an expansionary policy as the discount rate today is higher than at the time and the rupee erosion a lot more concerning; (ii) the rupee value has stabilised since the announcement of a partial withdrawal of subsidies on petroleum and products; however, a complete withdrawal would, without doubt, be an upfront condition for the success of the seventh review (a condition that would have serious negative political implications) that account for the government’s subsidy packages — an additional 2000 rupees per household to Benazir Income Support Programme beneficiaries as well as those households with income less than a stipulated amount — a policy announcement that is unlikely to fully mitigate the impact on the subsidised essential items available in the market due to hoarding of these items nor is it sufficient to sustain the quality of life of the poor and vulnerable; (iii) what is within a government’s prerogative notably is its own current expenditure that has been allowed to rise to levels that are no longer sustainable — items that include wages of government employees, which have been consistently higher than the rate of inflation, income tax exempt pension payments that have become unsustainable without employee contributions as in other countries, and defence allocations that cannot be curtailed due to a recent resurgence of terror attacks in the country though there must be a cap on new procurement for a year or two; and (iv) to fund its rising expenditure Pakistani governments have relied on borrowing which explains why borrowing costs are almost a quarter of the budget today. In this context, it is disturbing that Finance Minister Miftah Ismail recently stated that 36 to 37 billion dollar external borrowing would be required for next fiscal year — a target that he rightly pointed out is not likely to be met without the success of the seventh review.
One would assume that the budget would reveal whether any out of the box economic measures have been proposed in the budget but there is an urgent need to contain government expenditure.
While it is clear that the onus of meeting the IMF programme conditions have been passed on to the general public by all previous governments, barring none, while not implementing reforms within the poorly performing sectors or reducing current expenditure yet the situation today is so dire that without the public (the rich as well as the vulnerable) making significant sacrifices the economic impasse will persist with its associated harsh policy decisions.
True, that the public considers the recent rise in petroleum prices as an unjustified burden rather than the outcome of the Russia-Ukraine war/global supply disruptions and refuses to understand the linkage between the recent rise in electricity rates (under the head of fuel adjustment charges rather than in base tariffs) with international fuel prices yet there is an urgent need for the public to make some adjustments that would go some way in reducing electricity demand and therefore lower the countrywide demand for fuel.
One painless though vigorously opposed measure in the past is to open shops at around 9am in the morning and close them before sun down as is the case in other countries (other than say chemists or those stocking essentials for example milk). Keeping shops open till late in the night when the electricity shortage is so acute is simply unfathomable particularly in times of severe energy constraints due to the high cost of producing this energy base on imported fuel and the limited availability of foreign exchange that demands a significant compression in imports.
It is, therefore, imperative that the federal government in consultation with the provinces immediately takes steps to ensure opening of retail markets and shopping plazas only during daylight hours with due exceptions for shops selling medicines and bakery items. Wedding functions too should be held during daylight hours. These restrictions should apply at least for the next 5 months and may be extended if required.
While one would hope that the current dispensation slashes current expenditure significantly in the budget as a measure of its commitment to the well-being of the people yet without general public belt tightening stabilisation will take a long time accompanied by the associated harsh monetary and fiscal policy decisions. It is therefore necessary that policy measures designed to curtail demand be buttressed with appropriate executive/administrative action to achieve the set targets for taming inflation, stabilising the external account and containing our national addiction to imports.
Copyright Business Recorder, 2022