An uphill task

LAHORE: One must sympathise with the man spearheading the Ministry of Finance, because the economy has not turned around in six months. The previous government ignored the problems that were resolvable a year back, which have now compounded.

People in Pakistan even after 75 years of independence are unable to evaluate the economy in its real perspective. Economy never deteriorates overnight unless some catastrophe like an all-out war or a national disaster happens.

In the four years of the PTI government, we managed to avoid defaults by getting short-term loans of around $3 billion every six to eight months. These short-term loans were never returned, and we pleaded to reroll those loans at the time of payback.

Presently, the state lacks foreign exchange and every three to four months loans worth $3 billion mature, and we make efforts to reroll. Short-term loans always carry high interest rates and we have been paying a heavy price for these loans for the past four years.

The previous regime was very late in seeking the International Monetary Fund (IMF) for rescue. A tough programme was accepted by then Finance Minister Hafeez Sheikh.

The going was tough, and the electorate was restive after that. But things at global level were coming under control.

Sheikh was unceremoniously shown the door to be replaced by Shaukat Tarin at a time when the IMF put its programme on hold. Tarin managed to renegotiate the programme on even tougher terms. He had no choice as without the IMF in the loop Pakistan would have defaulted.

However, when the PTI government realised that it would be ousted, it blatantly violated the IMF accord. Instead of increasing petroleum rates and power tariff under the formula agreed with the IMF, the government reduced both petroleum prices and power tariff. This one step derailed the economic stabilisation done by Sheikh.

Once the coalition government took charge, it immediately asked the IMF for the revival of its programme. However, the Bretton Woods institution insisted that the government should first restore the agreed power tariff and increase petroleum rates in one go as per the timeline agreed with the PTI government. Then it asked to continue increasing the tariff and petroleum rates according to agreed terms in future as well.

The jump in rates was beyond the capacity and capability of the citizens of Pakistan. It triggered high inflation, and eroded the value of rupee.

Amidst this turmoil, the State Bank of Pakistan was constrained to shoot up its policy rate to 15 percent. The rate was still much below the inflation rate and did not impact it.

At best, inflation was stabilised. People now are in greater distress than they were during the tenure of PTI, and they blame the present regime for their troubles.

It takes reasonable time to revamp an economy when it nosedives as the Pakistani economy did in past few years. There is no magic wand. Things would come back to normal after at least a year.

This government is too weak to take steps to hurt the affluent segments of society, who are tax evaders, smugglers, under-filers, and hoarders that manipulate prices. The new finance minister after initial success in controlling the decline of rupee has apparently given up after talks with the IMF.

Pakistan is in dire need of keeping the rupee below 200 against the dollar to bring prices down, control inflation, and ease the mark-up. If administrative measures fail, the government must squeeze exports to considerable levels and eliminate under-invoicing by charging the same sales tax that similar Pakistani products pay. The import tariff price should be based on the factory gate price of the same Pakistani products. The imports would squeeze by 30 percent.

Some difficult steps are necessary to manage the current quagmire that the country is stuck in.