Thursday August 11, 2022

Cruel joke

December 04, 2021

LAHORE: After the massacre at the capital market on Thursday, humiliation of rupee against dollar and regular depletion of foreign reserves, the rulers must admit to their failures in the economic affairs of the country.

The claim that the economy is on the right path is a cruel joke. First it was the common man that was complaining now it is the rich that are also looking for cover. Pakistan is being run on borrowed money. It is surprising the government succumbed to the IMF pressure to curtail the development expenditure by Rs200 billion.

The Bretton Woods institution should have proposed a cut in non-development expenses. In fact, the government of Pakistan should have offered to cut all unnecessary non-development expenses by Rs200 billion instead of curtailing the development budget. In pressing times nations do away with all luxuries. The use of air conditioners, transport and travelling must be curtailed at least by 50 percent. The telephone expenses could be slashed by 50 percent. The officers must be encouraged to communicate through WhatsApp calls, instead of using mobile operators’ networks or landline. There are many ways to curtail expenses, but instead the government opted for the easy way out by cutting the development expenses.

We have agreed to humiliating conditions of the donors to boost our foreign exchange reserves. But the question is for how long will the IMF tranche of $1 billion and Saudi injection of $3 billion last? Liquid foreign exchange deposits of State Bank of Pakistan that stood at $20.07 billion on August 1, have depleted to $16.01 billion on Nov 26. This means a net depletion of $4 billion in four months. If the deals with the Saudis and IMF go through, we will replenish those $4 billion. But the ever-increasing trade deficit and other foreign debt servicing liabilities would eat this injection in the next four months. What would we do then? Seek more foreign loans on more humiliating conditions?

The rupee has devalued from Rs152 against the US dollar to Rs177 in the last 7 months. And there is no end in sight. Market players are aware of the stark economic realities. This is the reason that despite a warning by the Adviser on Finance to the Prime Minister that rupee would appreciate by Rs8-9 very soon, the appetite for dollars has increased instead of waning.

The imports have touched historic highs. November imports were record high but the imports in August, September and October were higher than in any month during the tenure of past governments. The Ministry of Finance sees high imports as an easy way to generate revenues. This is the reason that instead of banning imports of luxury items it goes on increasing regulatory duties. The ever-declining rupee is an icing on the cake for the tax collectors as it boosts import revenue. This is besides the fact that the declining rupee forced the central bank to raise the interest rates. This in turn has increased the debt servicing liabilities of the government by about the amount equivalent to the increase Federal Board of Revenue achieved in its collection target.

The capital market never reached the peak it achieved during the tenure of the previous regime. In fact, after the largest ever single-day decline of the year of over 2,000 points the market was trading at 10,000 points less than its peak. Which of the above indicators show the economy is recovering?

The increase in remittances was a saving grace thanks to Covid-19 impact that curtailed foreign travel as well as religious travel. Now that the travel restrictions are relaxed there would be some decline in remittances. Exports have also recovered remarkably but overshadowed by abnormal increase in imports. Roshan Digital Account deposits are highly expensive and after a while would become a burden on the state. Encouragement of these deposits show the desperation of the state to shore up its reserves.

There is not much progress on the job front. The regular hikes in prices have not been compensated with increase in income. The pressure on prices continues as the inflation remains out of control. An inflation of over 10 percent is unbearable in wake of the high price base created by high inflation of the last three years.

There is an economic emergency in the country. The state is incapable of looking after the welfare of the population, majority of which are poor. The state is also helpless even in running day-to-day affairs of the government from the revenues it generates. To make ends meet it resorts to loans at any cost instead of bringing tax evaders into tax net.