Monday October 18, 2021

Economic future

September 24, 2021

For Pakistan and the majority of its people, much depends on how the country’s economy fares over the coming months. Finance Minister Shaukat Tarin, in a recent statement has said that inflation has been caused due to the programme with the IMF but the government will try to reduce the impact of this on regular citizens by offering subsidies on ghee, cooking oil, and also consider doing the same for other basic commodities such as sugar. He spoke about the rise in the prices of these commodities in the global market, while at the same time noting that petrol was being sold in Pakistan at Rs123 compared to Rs250 per litre in India. Tarin also said that Pakistan’s economy was moving in a positive direction, and that the results would be noted soon by the people. Certainly, we all hope this is true. The impact of inflation on households across the country, including those belonging not only to the lowest income groups, but also those living on salaries, has been traumatic. There have been reports about children being pulled out of school because parents can no longer manage fees – and of an increase in malnutrition because of the poor supply of food that people are able to purchase.

But there is more to the economy than inflation, which will come down only if the economy can be balanced and a way found to make it move forward at a faster pace. The State Bank has increased the benchmark policy rate to 7.25 percent, changing its strategy from last year when it had reduced the policy rate on the grounds that a Covid-hit economy could not manage the extra burden that a change on this count would place on it. The State Bank has also decided to allow the market rate to stay in place and determine dollar costs without intervening in this matter. Economists believe this is a positive step given that intervention in the past has created economic losses and consequent rise in inflation and other economic pressures.

The truth also is that Pakistan desperately needs to increase exports. Major business owners and industrialists say this can only happen if the government also provides support in terms of the provision of energy in the form of gas, electricity and fuel. They note that this is especially true for Karachi, which provides 55 percent of the country’s exports, but is desperately short of the energy needs required for this. The rise in the freight of containers to send goods abroad has also been noted while government help has been sought by industrialists in managing quality control and, at the grassroots level, the production of commodities such as raw cotton required to produce textile goods. There can be no doubt that we need an overall economic policy that can address all these areas. The recent crisis in energy has affected production badly and, while during the Covid crisis we saw exports initially given to Bangladesh and India diverted to Pakistan, there is some doubt as to whether this trend will continue. There is also reason to consider why Pakistan is exporting fewer textiles than Bangladesh which does not grow cotton.

The whole matter essentially rests on confidence in the country, since confidence will draw in the international investment Pakistan badly needs. At present we are still short of this. There have been some attempts by local companies to draw in foreign partners. But a much bigger increase in foreign investment is desperately required. And this is one of the goals the government and the private sector must work on together to ensure we can continue to make economic progress and put the economy on a stable footing without incurring an even larger current account deficit than exists at the present moment. Indeed, this deficit must be covered and a movement forward made from this point on, while tackling the issues created by inflationary pressures, whether they come from the IMF or other factors.