EDITORIAL: On Wednesday, the United Arab Emirates rolled over 2 billion dollar deposits for another year. Last week the International Monetary Fund (IMF) had deposited 705 million dollars as the second tranche under the ongoing Stand-By Arrangement with the State Bank of Pakistan – both borrowed inflows credited under foreign exchange reserves held by the SBP.
As on 5 January 2024 the SBP reserves as per its website were 8,154.8 million dollars; however, it is unclear by how much the country’s reserves would actually rise due to these two inflows given that reportedly the UAE decision to roll over the 2 billion dollars was taken before the expiry date of the previous rollover of the same amount or, in other words, the amount was never subtracted from the reserves; while the first tranche IMF disbursement will be credited as and when the SBP updates the reserves it holds. This assessment has traction as the projection of a rise in level of reserves is expected to be 8.8 billion dollars or a mere 0.65 billion dollars more than the reserves on 5 January 2024.
SBP noted a 397 million dollar current account surplus in December 2023, which without doubt reduces the pressure on the foreign exchange reserves and, by extension, on the rupee-dollar parity. Even though the July-December current account remains in deficit at 831 million dollars, yet the country witnessed a whopping 77 percent decline from the comparable period of the year before.
Sadly, in spite of this spate positive news other components of the current account weakened and present a source of serious concern to economists: (i) financial account for the first six months of the current year registered at negative 4276 million dollars against 726 million dollars in the comparable period the year before – a 688 percent decline; (ii) portfolio investment registered at negative 71 million dollars in spite of the 22 percent discount rate against positive 1033 million dollars in the first six months of the year before; and (iii) direct investment from abroad was 28 million dollars July-December fiscal year 2024 against 968 million dollars the same period in the year before.
This data clearly indicates that there is absolutely no room for complacency and there is no option but to secure another longer term IMF programme when the current one ends (scheduled for the second week of April) with all its associated politically challenging conditions.
What should be a serious source of concern to the stakeholders at the present moment in time is that the feel good factor amongst the general public with respect to a rollover and IMF tranche release is limited, if any, for the simple reason that a householder weighs the performance of any administration against the purchasing power of each rupee that he or she earns.
With the consumer price index of 29.7 percent in December (inclusive of imported inflation) with only a slightly lower July-December average of 28.79 percent, a sensitive price index of 44.16 percent for the week ending 11 January 2024 (with a baffling wholesale price index of 25.37 percent July December 2023 against 34.10 percent in the comparable period of the year before) there is a simmering discontent which needs to be dealt with promptly.
To blame the IMF conditions for the raise in utility rates and petroleum levy, major contributors to inflationary pressures today, is unlikely to cut any ice with the public for the following reasons: (i) there has been no attempt to reform the tax structure by reducing the over 75 to 80 percent existing reliance on indirect taxes whose incidence on the poor is greater than on the rich and whose inflationary impact is considerable; (ii) higher tariffs are being viewed as passing on the buck to consumers instead of focusing on sector inefficiencies, wastage, and corruption; (iii) current expenditures account for nearly 92 percent of the entire budget, expenditure that only allocates around 3 percent on Benazir Income Support Programme (with subsidies remaining untargeted); and (iv) borrowing from the banking sector to fund current expenditure, that is not backed by any increase in output, which is not only highly inflationary but also crowds out private sector borrowing with a negative impact on available employment opportunities.
The stakeholders need to focus on those aspects of the economy that are of relevance to a household because the people of this country have been labouring under severe economic hardship for a long time now and their capacity to withstand the continuation of flawed policies is eroding by the day. Given that economic deprivation is now seeping into the ranks of middle income earners, the argument that elections would lead to political stability which will lead to economic stability is simply no longer valid.
What is required is for the two main front runners — PML-N (Pakistan Muslim League-Nawaz) and PPP (Pakistan People’s Party) — to announce a major deviation from their past flawed policies that continue to this day; and unfortunately recent speeches and statements by the party leadership do not provide any comfort in this regard.
Copyright Business Recorder, 2024
Comments
Comments are closed.