Limping into 2019 with a lame economy and aflame politics

LAHORE: Pakistan would enter the New Year with an economy that’s growing colder and colder by the day and national politics, which is getting hotter to the extent that some see a meltdown imminent.

The foreign assistance managed through hectic efforts would go to waste if the political temperature continues to remains high, impeding the government to pay full attention to the economy.

When this government assumed power, foreign exchange reserves were the main problem. It has somehow managed to borrow over $6 billion from friendly countries but that did not help trigger economic growth as that money would be spent on servicing loans.

As far as the economy is concerned the government has not made any serious efforts to revamp it. It has though provided a lucrative package for five exporting sectors but it is unlikely to boost exports.

Its tax collection is on the decline despite substantial tax measures announced in the mini budget. It is also contemplating to announce fresh tax measures in the next few days. No reforms have been introduced.

The approach of do-nothing and hope for the best would plunge the economy in to worst of recessions.

The manufacturing sector has already slowed down. The factors that need immediate attention of the government include high interest rates, high inflation, high energy cost, falling exports, devaluing rupee and rampant corruption.

All these factors are interrelated. Reining in inflation, for instance, would result in lower interest rates, lower commodity rates. Boosting exports would stabilise the rupee and reduce current account deficit.

The type of inflation prevailing in Pakistan could only be controlled through close cooperation with the provincial governments. There is no effective check on prices.

The rates of petroleum products, for example, have declined locally by

40 percent, but the rates of lubricants like engine oil and transmission oil are still at their peak because there is no authority to regulate the rates of these items.

Retail rates of fruits and vegetables are fixed 30-40 per cent higher than their auction price at the fruit and vegetable markets even then the actual retail prices are higher.

The federal government would have to facilitate the provincial governments in eliminating the role of middleman who engineer and pocket high commodity rates.

The central bank failed to force the banks to give realistic interest rates to the depositors that resulted in a drastic reduction in national savings.

Despite providing low interest rates to depositors, the banks have been charging high markup rates on loans lent to entrepreneurs, who finally stopped borrowing, lowering down the GDP growth.

The high banking spread benefited the financial institutions only, while the labour intensive industries are caving in due to high cost of borrowing rendering large number of workers jobless.

The government as the largest borrower has already crowded out loans for private sector.

Exports have not shown any sign of improving at the desired pace. Textile exports in fact have declined. This fall is more pronounced in yarn and fabric exports.

The apparel exports have increased but their prices went down. The increase in quantity of readymade garments and knitwear is much higher than the increase in dollar terms.

Donald Trump’s trade war with China created a huge opportunity for all Asian economies.

Every other country except Pakistan has benefitted from it.

Despite a constant inflow of borrowed dollars, rupee is constantly losing its value.

The foreign credits would not be available for an indefinite period. Pakistan would have to curb its imports and boost exports to ensure a stable currency, which is vital to attracting long-term foreign investment.

The imports have reduced nominally in the recent months, but that was mainly due to massive rupee depreciation that made imports very expensive.

The increase in regulatory duties on luxury imports have not slowed down the import of used cars or even foods and cosmetics.

We should have taken the drastic measures of banning all luxury imports till our foreign reserves were in a comfortable position.

The low rupee value has also deprived consumers of the benefit of a cooling off international crude oil market.