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December 6, 2019

Hoping for better


December 6, 2019

It is good to hear that the government is beginning to show some verbal recognition of the burden borne by Pakistan’s middle class and the poor due to its economic policies. In response to receiving an improved credit rating, State Bank of Pakistan Governor Reza Baqir on Tuesday spoke about the need to ensure that the benefits of economic stability should reach lower and middle income groups in the country. Recognising that the burden of high inflation and higher taxes had been borne by the professional and working classes, the SBP head defended the government’s policies, including devaluation, price increases and food supply disruptions. But there remains something crucial missing in the analysis: a practical understanding of how to increase investment as well as improving wages for professionals and the working poor.

It is unfortunate that the SBP governor only referred to the ease-of-doing business index improvement as proof that structural constraints on private investment had been removed. Ground realities show that investment levels remain the lowest in Pakistan for years, which will not be fixed by reducing the regulations on business, but by improving the overall business environment. It is also good to see the SBP governor reflect on the need to curb the hoarding of food supplies to make profits, but this an area which needs action, not words. Such action has been few and far between. The fact that Pakistan has received a ‘stable’ rating from a foreign credit agency is also being overplayed, especially given the fact that this was exactly the rating the country had before the current government took power. The government cannot be given a pat on the back for steering a vehicle off the road, only to bring it back on the road after a long detour. Few will sympathize with such a story, even if state officials continue to repeat the narrative many times until the public tires down.

If the government believes exports have become more competitive, this needs to start showing through an increase in net exports. If domestic industry has gotten a fairer environment without competition for imported goods, the evidence needs to be provided. It is not enough to tell a good story that does not correspond to reality. If anything, food inflation has continued to rise in recent weeks, a fact admitted by the government in a press conference. Inflation is likely to increase compared to October once the figures are released, while the government has received criticism for attracting around $1 billion in hot money in the short-term equity market. It has responded, but the answers have not been convincing. Offering high rates of interest will always attract money, but it does more damage than the benefit it provides. What is worse, however, is that the government is claiming economic stability has been restored at a time scale manufacturing has been falling every month. The hope that the government is projecting is hard to see. One can only hope that the recognition that many are not doing well in the current economic environment will lead to better policy changes.

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