Money Matters

Tighten the belt

Money Matters
By Mansoor Ahmad
Mon, 05, 22

Pakistan’s economy is in dire straits. Our businessmen must see this economic reality and refrain from taking or demanding actions that will further compound our fiscal worries.

Tighten the belt

Pakistan’s economy is in dire straits. Our businessmen must see this economic reality and refrain from taking or demanding actions that will further compound our fiscal worries.

It has been evident over the past several years that businessmen aspire for concessions and facilitations from the state to boost their businesses and improve profits. There are some policies, some taxes and some known malpractices that hurt their business.

These problems can be resolved if the entrepreneurs and their trade associations demand and accept full transparency in economic affairs. But they do not do so.

Instead, when some zealous Federal Board of Revenue (FBR) official refuses to release a container full of child wear at the declared low value, the businessmen and relevant trade associations force the government to release the imported dresses for children at less than a dollar per piece.

The same dresses are retailed in the market at minimum of Rs1,000 ($5.5) per piece. When the FBR officials raid markets to nab tax evaders, the traders through protests and agitation ensure that the raids are stopped.

Similarly, when the tax officials announce large scale audits of the accounts held by business enterprises, business associations start calling the out the FBR for “anti-business” measures.

In short, the business community desires that the status quo is maintained on the level of semi or no tax compliance. Their wish is to continue operating without paying appropriate taxes.

Entrepreneurs and that includes sizable industries, do not want the environmental protection department to seal their smoke emitting factories or the units polluting water channels with industrial waste. Their associations plead that polluting industries should be given some time to follow through on compliance. The delaying tactics continue with no end in sight and the government ultimately relents; thus, allowing the polluting factories and units to continue their operations. This has been going on for the last seven to eight years.

There are certain policy measures that a government and the central bank are forced to take to ensure that discipline is maintained in the economy. These measures include petroleum product rates and the central bank’s policy rates.

As far as petroleum and other fuels are concerned, Pakistan is a net importer of these commodities as domestic production is nominal. Currently, the government is subsidising petroleum product rates to the tune of Rs50 billion per fortnight.

The government must increase the rates or bear a subsidy of Rs1.2 trillion per year that may increase if the rupee continues to decline. Fortunately, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has asked the government to increase the rates of petroleum products, but most trade associations oppose the rise in fuel prices.

Businessmen do not operate their enterprises on loss. Instead of bearing losses they prefer to wind up. But, in the case of a government they want it to continue bearing losses. This hypocritical approach must be stopped.

The Pakistani rupee is under severe pressure. Its trade gap has widened to a historic high level. Inflation is also on an upwards trajectory. The only immediate measure to cool down inflation and stop run on the rupee is to further enhance the policy rate.

Another alternative is to increase the exports and curb imports, especially the import of luxury goods. The government and the State Bank of Pakistan have taken measures in this regard, but for the impact of these measures to show up may take up to a year.

We cannot wait for a year as our foreign exchange reserves are depleting fast and pressure on the rupee has intensified. The auction of treasury bills is at higher than policy rates. The rates must be enhanced. However, each of the associations that greeted the new governor of the State Bank of Pakistan have expressed hope that the policy rate would be brought down by the central bank.

They have to be realistic and think about what is better for the country in the long run. They must be realistic entrepreneurs, and instead of running away by getting many of their irrational acts condoned, they should let the central bank take decisions that are in our national interest.

There can be no running away from the responsibility of fixing the economy of Pakistan. If appropriate measures are not taken, we will continue to suffer, with those on the lowest rung of the economic ladder bearing the heaviest brunt of fiscal mismanagement.

Politicians, bureaucrats, businessmen and people should all brace for the heavy impacts that can be the outcome of the tough decisions that, in the given scenario have become unavoidable.

The writer is a staff member