Eco­nomic needs

The Pak Banker - - FRONT PAGE -

Var­i­ous in­ter­na­tional agen­cies, in­clud­ing the Asian Devel­op­ment Bank, have re­cently un­der­lined the eco­nomic chal­lenges fac­ing Pak­istan. Th­ese in­clude poor gov­er­nance that un­der­lies the in­sti­tu­tional bot­tle­necks fac­ing the coun­try rang­ing from de­lib­er­ate ob­sta­cles placed to cir­cum­vent in­ves­ti­ga­tion on cor­rup­tion-re­lated mat­ters, Pak­istan In­ter­na­tional Air­lines' ris­ing losses, etc, and poor per­for­mance due to se­nior ap­point­ments made on the ba­sis of nepo­tism rather than on merit. The other ma­jor is­sue is lack of eco­nomic growth mo­men­tum which be­lies per­sis­tent claims by the gov­ern­ment that growth had reached lev­els not seen in the coun­try in decades.

Em­pha­sis­ing that dif­fi­cult days are ahead, economists have iden­ti­fied some sec­tors that can help over­come the ris­ing trade deficit. In the given cir­cum­stances the in­dus­try is the main vic­tim of the deep­en­ing eco­nomic cri­sis whereas ru­pee de­pre­ci­a­tion is adding to eco­nomic mis­eries of the coun­try. Eco­nomic ex­perts' ob­ser­va­tions are not off the mark. Pak­istan gov­ern­ments of­ten de­pend on bor­row­ing from in­ter­na­tional agen­cies which force us to adopt poli­cies that are detri­men­tal to the in­dus­try such as mas­sive in­creases in elec­tric­ity and gas tar­iffs. Surely, an econ­omy can­not grow with a debt bur­den of over $85 bil­lion whose ser­vic­ing eats up a huge part of the fed­eral bud­get. It is true that there is no overnight so­lu­tion to the eco­nomic woes, but there is a need to set di­rec­tion and in­tro­duce eco­nomic re­forms to boost trade and in­dus­try.

Pak­istan faces many eco­nomic chal­lenges, in­clud­ing a de­cline in ex­ports and for­eign di­rect in­vest­ment, low tax-to-gross do­mes­tic prod­uct ra­tio and in­ef­fi­ciency of pub­lic sec­tor en­ter­prises. Th­ese chal­lenges need to be ad­dressed through a mean­ing­ful part­ner­ship and di­a­logue be­tween the gov­ern­ment and the pri­vate sec­tor. There are a num­ber of other is­sues that must be tack­led head-on, spe­cially main­tain­ing the growth mo­men­tum fol­low­ing less-than-tar­geted ex­pan­sion of the agri­cul­ture and man­u­fac­tur­ing sec­tors. An­other big chal­lenge is the widen­ing gap be­tween ex­ports and im­ports.

In a wider con­text, the eco­nomic land­scape in­Pak­istan is set to change dras­ti­cally in the com­ing days fol­low­ing the de­pre­ci­a­tion of the ru­pee by 7 to 10 perceent over the past few weeks. Ex­perts say the drop in the ru­pee's value will make im­ports ex­pen­sive, push in­fla­tion to the an­nual tar­get of 6% some­time in the mid­dle of cur­rent fis­cal year and force the cen­tral bank to in­crease in­ter­est rate by March 2018. On the other hand, ru­pee de­val­u­a­tion will help the gov­ern­ment re­duce pres­sure on the ex­ter­nal trade front, rein in the fast widen­ing cur­rent ac­count deficit, min­imise pres­sure on for­eign ex­change re­serves, at­tract higher re­mit­tances from Pak­ista­nis abroad and de­lay the float­ing of more Eurobonds. It will also help re­duce im­ports, re­vive ex­ports and check the widen­ing cur­rent ac­count deficit. It is rel­e­vant to add here that the cur­rent ac­count deficit widened 122% in the first four months (July-Oc­to­ber) of the cur­rent fis­cal year 201718 to $5.01 bil­lion com­pared to $2.26 bil­lion in the same pe­riod of pre­vi­ous year.

At the same time, the de­pre­ci­a­tion of the ru­pee will help in­crease re­mit­tances as those who had cho­sen to send money back home via hundi/hawala sys­tem can now rely on proper bank­ing chan­nels to en­joy a higher ex­change rate. How­ever, the need now is to man­age the money mar­ket in such a way that there is no fur­ther cut in the ru­pee's value. For, if the ru­pee con­tin­ues to slide, im­ports will be­come very ex­pen­sive and in­fla­tion will in­crease, adding to the con­sumer's mis­ery. There is also an ur­gent need to de­vise a new pol­icy pack­age to boost ex­ports and at­tract for­eign in­vest­ment essen­tial for rapid eco­nomic growth.

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