EDITORIAL: It’s undoubtedly good news that private sector credit off-take has jumped to a record Rs911bn in Jul-Mar11, 2022, from Rs357bn in the same period of last year. But now that the interest rate environment is turning hawkish once again, the government must already be concerned about maintaining this growth momentum. More so, because there’s already plenty to keep the entire economy on edge.
The Extended Fund Facility (EFF) with the International Monetary Fund (IMF) is in limbo once again, there’s talk of more across-the-board taxes that will bite further into incomes of the working class, and the PM’s “relief package” threatens to put more pressure on the current account than it can handle. Therefore, as the finance ministry works out ways to keep credit pipelines open to the private sector, it wouldn’t be a bad idea to give some thought to (finally) plugging some leakages in national reserves as well.
It is obvious that the way State Owned Enterprises (SOEs) hemorrhage hundreds of billions of rupees every year casts an unsustainable burden on the economic health of the country that threatens to lead to a national security emergency.
And since the private sector is being talked about here, and everybody knows what the one workable solution to the problems of SOEs is, then why not work on an actionable privatisation plan, at least for the worst of them, and then route the money thus saved to development and debt relief? Otherwise, the way the rupee is depreciating, the deficit is widening, and prices are rising, Pakistan risks being doomed to a low-productivity, low-growth, and therefore very stag flationary environment; that is the worst time to also be condemned to the classical debt trap.
It’s true that a lot of things are simply beyond our control. The commodity price rush first triggered by the post-lockdown global “reopening” and then turbo charged by the Russian invasion of Ukraine has upset economies all over the world; and Pakistan is no exception. But it’ also true that a lot is not out of our control. Manipulation in the local market, of commodities that are produced not imported, by mafia groups or middlemen that the prime minister vowed to hunt down long ago, is very much the government’s business and its responsibility. As is, recklessly throwing money into public relief programmess, howsoever well-intentioned they may be, when there isn’t enough in the kitty and much of it must be borrowed, and that too at high rates. That just makes for the text-book inflationary scenario of too much money chasing too few goods, since there is no corresponding increase in output.
Pakistan is in desperate need of policies that can erect a strong workforce capable of producing exportable goods. And since remittances make up for a big chunk of our forex reserves – and in fact save the day for the current account, to whatever degree circumstances allow – there’s an equally desperate need for a workforce that can work and earn abroad and remit more money back home.
The private sector must lead the charge if the economy is to rebound, no doubt, but the overall contractionary environment brings strong headwinds. That’s why it’s important to work with the Fund right now, not put a spanner in the EFF whenever the politics gets too hot. The bailout programme is virtually frozen precisely because of the government’s “one step forward, two steps backwards” movement which shows that it is still reacting more than it is acting. It says a lot that almost four years into the present administration nobody’s quite sure if it will tighten fiscal policy, as IMF demands, or loosen it, as it wishes. And nothing spooks the private sector, or any other breed of investor for that matter, like confusion and lack of direction.
It is hoped that the government will take all stakeholders on board and carve out a serious strategy, to avoid the debt trap that we may end up in.
Copyright Business Recorder, 2022