Wednesday October 27, 2021

Economic issues

September 26, 2021

Finance Minister Shaukat Tarin is sanguine about Pakistan’s business, economic, and financial situation. He is all praise for the Pakistan Single Window (PSW) for expected reduction in complications and costs of doing business in Pakistan. While such initiatives are likely to be good for Pakistan’s economy, there are aspects of the current situation and their implications for common people that deserve attention. The government has been talking about ease of doing business and enabling the country to unlock its potential in becoming a hub for regional as well as international trade and transit. There are hurdles which have prevented Pakistan from achieving these ideals. Arguably the most important impediment is the government’s inability to eliminate hidden costs that not only the business and industrial community bears in Pakistan, but regular people also end up paying a huge price for them. With inefficiencies in the governance of the economic and financial sectors, there appears to be some disconnect among various ministries and departments that make vital decisions regarding the economy.

Agriculture, banking, customs, deficit management and depreciation of currency, exports, financial regulation, goods manufacturing, health of the economy, inflation, jurisdictions of FBR and NAB, and many other areas appear to be functioning in conflicting directions. Relevant departments do talk about ‘process reengineering’ but it remains an elusive term. Pakistan’s ports remain uncompetitive, transaction costs remain high, and value-added services are reeling. Regulatory departments are working arbitrarily, and cross-broad trade with neighbouring countries remains negligible, as our major trading benefactors remain the EU, Saudi Arabia, USA, UAE, and UK – many of whom we are not happy with regarding their stance on the Afghan Taliban. Though the Paris Club of creditor countries has given Pakistan another extension to service its debt so that it can dedicate its resources to combating the Covid-19 pandemic, it is a temporary relief. Now Pakistan has until December to make the payment. The resources freed by this initiative will be handy in spending to mitigate the economic and health impact of the Covid-19 crisis.

It needs some highlighting that the country’s debt amounts to some 90 percent of its GDP, and Pakistan’s debt service for the 2020-21 fiscal year totaled nearly $57 billion. Pakistan still owes $11.5 billion to the Paris Club. With this background, stocks in the country have been plunging regularly and knocked off 223 points on Sept 24 from the KSE-100 index. This past week the losing spree continued, wiping off over 1500 points from the index. Geopolitical tensions have a lot to do with this and the government must take cognizance of it, while advocating the case for world recognition of the new Taliban regime in Afghanistan. Related to this is also the hike in SBP interest rates to 7.25 percent. The widening current account deficit with an upward spiral in imports and major devaluation of the rupee are resulting in soaring inflation. Then we also have an upcoming meeting with the IMF in October. All this deserves a more circumspect approach by the government and its economic managers, as the citizens of this country are concerned about what lies ahead for them by the end of this year.