Economy: government has a long way to go

The economic teams of almost all the previous governments always admired the quality of their own economic management and boasted about their achievements. The present government, too, does not seem to be an exception to this tendency. Addressing the business community in Faisalabad, Governor, State Bank of Pakistan (SBP), Dr Reza Baqir stated that economic sentiments in the country had become positive and with mobilisation of national resources, more relief would be provided to the private sector so that it could catalyze national economy. During the last six months of the current fiscal, exchange rate has been switched from fixed to a market-driven regime while imports have been reduced. Exports have recorded, however modest, an increase. Comparing Pakistan with Egypt, he said that while exchange rate in Egypt increased by 125 percent in only 24 hours, only a 55 percent increase was recorded in Pakistan during the last 18 months. Interest rates in Egypt jumped to as high as 18-19 percent while in Pakistan the policy rate was still 13.25 percent. All the macro-level indicators of our economy are positive and inflation will start decreasing in the next few months. Revenue collections have increased in the range of 20-30 percent. There are various schemes for export sector, including Long Term Financing (LTF), offering only a 3 percent interest rate for the exporters. As the economic situation will improve, the ban on imports will be gradually eased. Dr Baqir also mentioned various schemes for women entrepreneurs. The number of pages of forms for loan applications has now been reduced to only one and half pages. The cushion for LTF will be increased further.

Some members of the Faisalabad Chamber of Commerce and Industry (FCCI), however, criticised the interest rate hike and said that SBP must take solid measures to provide cheap loans to the private sector. The current inflation rate was also criticised. It must be brought down to provide relief to the common man as the economic situation was improving.

It may be mentioned that Dr Reza Baqir is not the only member of the present economic team who seems to be almost fully satisfied with the progress on the country's economic front made so far. The statements made by the Advisor on Finance, the Prime Minister and other members of the economic team in the recent past, it appears as if most of the problems of the economy have been sorted out and it is about time the government offered relaxations and other goodies to the business community and the public at large. In fact, the Prime Minister is so upbeat that he has told his economic team in recent meetings to offer and publicise various schemes which would blunt the criticism of opposition parties and yield some political dividends. Coming to the address of the Governor in Faisalabad, he may be right in enumerating some of the achievements of the present government, but the overall address smacks of some positive spin and is somewhat over-optimistic. For instance, it is true that exchange rate is now market-driven, C/A deficit has been substantially reduced, foreign exchange reserves held with the SBP have tended to rise and the rupee rate in the exchange market is stable, but it needs to be recognised that the gains are still, more or less, limited to the external sector of the economy. Other areas of the economy like growth rate, LSM sector, fiscal position, inflation rate and overall indebtedness have not shown any signs of improvement. The government is required to undertake most of the qualitative and quantitative measures envisaged under the IMF and display its capacity to withstand the political backlash to reforms. We urge the government's economic team to be cautious at the present juncture and not to go overboard, otherwise, pressure on the government to give more concessions will be difficult to bear and premature easing of policies may prove counter-productive in the medium- to long-term. Actually, the present government has still to go a long way to ensure development on a sustainable basis.

Some of the observations of the Governor are also difficult to support. His assertion in relation to a comparison between the economies of Egypt and Pakistan appears to be unwarranted. That the situation in Egypt was harder than Pakistan cannot provide any solace to the ordinary citizens of this country. How they are supposed to be happy to know that inflation was higher and exchange rate had to be depreciated more in Egypt than in Pakistan? Growth rate has stagnated at a low level. Tax revenues are much lower than the target fixed in the beginning of the year and this should be a matter of great concern for our policymakers. The LTF as a policy tool to expand exports was always there and the present government cannot take credit for introducing this scheme. The criticism of some business community members in Faisalabad was also unjustified. For instance, the SBP cannot decrease the interest rates because it is more interested in containing inflation than providing credit at cheap rates to industries. In our view, participants in such meetings should not confine themselves to their own welfare but discuss the pros and cons of all the policy alternatives to improve the overall health of the economy.