LAHORE: The Federation of Pakistan Chambers of Commerce & Industry’s Businessmen Panel (BMP) stressed need for a revisit of government economic policies, as the local currency continued to witness the intense fall while the key policy rate has constantly been escalated by the central bank to the record historic level, which will destroy the trade and industry completely.
FPCCI former president and BMP Chairman Mian Anjum Nisar said that volatile exchange rate, unprecedented hike in markup rate, repeated increases in electricity rates, gas shortage, price spiral, mismanagement and bad governance have now become the hallmarks of the govt.
He observed the negative economic indicators and uncertainty over resumption of the International Monetary Fund program continued to push the rupee towards a new historic low against the US dollar. He said that massive fall of rupee value continued to damage the economy, as the rupee witnessed a huge depreciation; one of the highest devaluations of local currency in Pakistan’s history.
Mian Anjum urged the policy makers to concentrate on increasing tax-to-GDP ratio which was the lowest in Pakistan in the region. The BMP leader warned if the government failed to take appropriate measures for economic revival, the trade and industry will face a complete shutdown, asking the government to convene a conference, taking the business community onboard.
The rupee during the week closed at 287.29, a loss of Rs2.25 or 0.8%, which is the lowest level for the Pakistani rupee since it hit 285.02 against the greenback in March this year, as the uncertainty pertaining to the IMF program is causing pressure on the Pakistani rupee while the country’s foreign exchange reserves have also declined, which is another source of concern for investors, he said.
He added that the SBP’s latest move to impose fines on exporters delaying receipt of payments would prove ineffective. While demanding a clear roadmap for the revival of economy, the BMP Chairman termed the present financial crisis as a nerve-shattering for trade and industry. There was a consensus among the business community that there was a lack of coherence in the government policies and things on economic front went shaky instead of moving for the last several months.
The FPCCI former president observed that besides increasing exports and controlling imports the government will have to take administrative measures, as a large demand of cash dollars are seen in the market. He argued that this devaluation of the currency was dictated by the IMF through prior actions and it has nothing to do with macroeconomic fundamentals. He said that there was a complete breakdown of economic policymaking, as the country’s fiscal policy had become subservient to monetary and exchange rate policies.
He said that the monetary tightening and exchange rate depreciation resulted in higher inflation, public debt and debt servicing. The empirical evidence showed that the one percent monetary tightening hiked the inflationary pressure by 1.3 percent in the case of Pakistan, he added. He said that the US dollar continued to rise against the rupee, reaching a record high. The government needs to devise a strategy on war-footing to increase foreign investment in Pakistan so as to stop the upward trajectory of the dollar, he added.
Exports went down quantitatively while the situation of new investment remained very bleak during the year, they observed adding that the Monetary Policy Committee of the State Bank of Pakistan has raised the key interest rate by another 100 basis points, taking it to 21 percent the highest level since October 1996. The government can blame the IMF or some unfriendly foreign powers for its economic predicament if it wants.
But it cannot deny that it is in hot water today due to its misplaced confidence that it could deviate from the IMF program and turn to friendly countries for its dollar requirements to avoid defaulting. Nearly four months after Finance Minister refused to be dictated to by the IMF, these countries also seem to be siding with the lender, providing Pakistan only enough to keep it going until the bailout loan is finalized. With a large credibility gap and trust deficit exacerbated by the ongoing political drama in the country, it is foolish to expect them to step up to help us in a big way without the IMF on board.
The IMF is now showing further strictness on issues such as the exchange rate, interest rate, external financing gap and the permanent debt-servicing surcharge on electricity. It must be pointed out that some of the new IMF conditions, such as linking interest rates with headline inflation and the imposition of permanent debt surcharge on electricity, seem quite unreasonable.
He appealed the IMF to show some elasticity on these conditions to prevent the country’s economic crisis from getting out of hand. He said power tariff registered an upward trend manifold and due to this single reason, Pakistani merchandise failed to get due appreciation in the international market and the neighbouring countries made huge gains.
Calling for bringing down the rate of interest, he said the State Bank of Pakistan should focus on banking spread that was intolerable and pushing the equity away from the reach of business community.
Copyright Business Recorder, 2023
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