Some say it was stubborn food inflation that forced SBP’s hand at the MPC, combining with the usual Ramazan effect and typical incompetence of price monitoring committees to rule out a dovish shift in monetary policy. Others say it was because an IMF delegation was in town to decide about the final tranche of the SBA (standby agreement). And since the Fund likes high rates in client states being given structural adjustment treatment, we played along to keep the money flowing.

You’d wonder why the IMF would advocate central bank sovereignty as a key part of its bailout engagement and then also want to manage interest rates. But you’d have to look no further than last summer for the answer, when PM Sharif held urgent late night talks with the IMF chief in Paris to hammer out the SBA when the EFF (Extended Fund Facility) stopped dead in its tracks – thank you Ishaq Dar – and the next day, rather night, the SBP held an emergency unscheduled meeting of its own and raised rates by a good 100 basis points.

That got us the SBA, tamed Pakistan’s CDS (credit default swap), and pushed the threat of default at least nine months (the duration of the program) into the future. But it also kept households, suffering under cost-push inflation, and industry, suffering from high rates that could do nothing about cost-push inflation, properly crippled.

The prospect of higher rates and improving fiscal conditions is never a clear path. Besides, this was already a very tricky situation. All the turbulence and devaluation of the preceding couple of years did not follow macroeconomic script; it did not promote exports, did not support job creation, and did not raise sovereign tax revenue. And the highest interest rates in history did not attract much risk capital either. Instead, they smothered the very exporters the country depended on to trigger growth and employment once stability was achieved.

It seems the industry expected a cut at the last MPC in late January. The caretaker setup was doing a good job of cold heartedly implementing all “upfront conditions”, so the SBA was pretty much in the bag. But, just when the time for measured growth seemed around the corner, those “upfront conditions” snaked into the tax and tariff regime and stoked cost-push inflation, forcing SBP to stay put at 22 percent.

So they turned their hopes to the March conclave. But by the start of Ramazan it was clear that retailers were defying orders and inducing artificial inflation in staple food, of all things, with authorities comfortably asleep at the wheel. And either that, or to keep IMF happy (if you believe conspiracy theorists), sufficed to keep rates at record high, where they have been since July 2023.

It’s a shame that Pakistani industry will remain priced out of the regional market because of a combination of high cost of energy and money (interest), compromising production, export, employment and wages back home, just to stay on IMF life support and keep from defaulting. It would have been much better to wind up the SBA and head into the next EFF with better export and growth figures, which needed lower interest rates, but this mother of all ironies promises us only the kiss of death to keep us alive.

Yet blaming IMF is not right even if it is in fashion. Things would not have been nearly as bad if we only had a fair tax structure and government departments could sort out wholesalers and retailers that have made a habit of exploiting helpless consumers to make their usual profits.

Nothing changes because we don’t change. And so long as the biggest fish and holiest cows remain untaxed, and price committees allow retailers to fleece consumers already broken by record inflation, all the fiscal support in the world will only barely keep us alive.

Nothing more.

Copyright Business Recorder, 2024