SBP spills the beans

Mohammad Jamil
THE nation has been listening to the rhetoric and claims of Finance Minister Ishaq Dar about economic growth of 5.3 percent, and highest-ever foreign exchange reserves. Chairing an emergent meeting of the finance ministry officials on Wednesday, Finance Minister Ishaq Dar took cognizance of the unprecedented increase in the interbank rate of the US dollar against the Pakistani rupee that touched Rs.108.25. He summoned the presidents of all banks on Thursday to review the situation, and it was decided in the meeting that exchange rate of Rs. 105 per dollar would be maintained. But it is not possible to stop the decline in Pakistan rupee through artificial means, as it is the market forces that determine the exchange rate. When Pakistan imports for about $53 billon and its exports are $19 billion, the demand for dollar increases, and value of rupee is bound to decline. Downslide in Pakistan Stock Exchange is also being ascribed to KSE 100-index which has come down to 45,413 against the record high level of 52388 in May 2017. It appears that share values at the PSX are not realistic, and prices of shares are manipulated by the brokers and players. If there is increase in the value of shares of companies without increase in sales of their products and profit, how the value of shares can increase in the stock market? As regards the current foreign exchange rate, the State Bank of Pakistan believes that it is broadly aligned with the economic fundamentals.
“While almost all macroeconomic indicators have been showing encouraging picture, such as decade high real GDP growth, increase in investment, credit expansion to private sector, and subdued inflation; the deficit in the external account has been rising for some time.” The SBP believed that the exchange rate has been adjusted in the market and this depreciation in the exchange rate will address the emerging imbalance in the external account. Finance Minister Ishaq Dar has been bragging about economic growth of 5.3 per cent in outgoing fiscal year and forex reserves touching unprecedented highs of $ 24 billion. But on ground the situation is alarming. As Pakistan’s trade deficit ballooned to an all-time high of $32 bn for 2016-17, which is mainly due to declining exports and partly because of declining remittances from Pakistani expatriates. The total import bill for 2016-17 is $51 bn, whereas Pakistan’s exports have been registered at $19 bn, hence trade deficit of $32 billion. It is unfortunate that despite fall in the oil prices in the international market, the gap between imports and exports continued to increase during the last three years. The fresh statistics have caused concerns about long-term sustainability of the external sector.Owing to the swelling trade deficit, the balance of payments of the country is now projected to worsen to levels never seen in the past. Finance Ministry in its budget documents, had revised the current account deficit projection to $8.4 billion for the year ending 2016-17 fiscal year, but actually it is $12 billion, which is highest-ever in the history of Pakistan. This could virtually erode the much-touted forex reserves within next 6 months. Independent economists say the ballooning trade deficit has finally exposed vulnerabilities of Pakistan’s economy. Despite incentives offered by the government, exports are not picking up, as these packages have remained partially funded causing resentment among exporters. One would not understand how the IMF and other financial institutions have been drawing a rosy picture about Pakistan’s economy, when it failed to meet the targets of fiscal deficit, trade deficit and current account deficit.Since the government had decided not to enter into the next IMF program, analysts noticed significant slowdown and reversal in the reform processes like government borrowings, energy reforms, tax reforms, privatization and re-structuring of loss making public sector enterprises. Despite decline in exports and expatriates remittances and debt mountain of Rs. 18 trillion which includes foreign debt of $72 billion Finance Minister was upbeat and presaged that by 2050 Pakistan will become the 18th biggest economic nation across the world.

This appears to be a funniest statement, as Pakistan could not meet the targets vis-à-vis fiscal deficit, trade deficit and current account deficit. Anyhow, the Current Account Deficit of $13 bn seems to be unmanageable, and even a bailout package from the IMF cannot salvage the situation. The government claims that GDP has increased from 2 per cent to more than 5 percent, but it is not reflected neither in the realm of increase in production and job opportunities nor in exports.
It means that to manage economy, Pakistan will have to fall back on the IMF and other international finance institutions, and will have to accept the conditionalites attached with the loans that are more often than not against the national interest. Otherwise also, Pakistan’s problem is growing public debt, as debt services – loan installments and interest – would consume about 33 percent of the federal revenue. Unprecedented growing public debt on one hand limits the capacity to build strong defence and on the other limits fiscal space to invest in human development and infrastructure. Unfortunately, Pakistan faces major challenges of income, gender, health and educational inequalities in extreme forms. Over 25 million school-age children are estimated to be out of school; more than 3.7 million of our labor force is unemployed; and about half of total population is victim of food insecurity. This could lead to chaos, uncertainties and even anarchy.