FPCCI warns of default without pro-business reforms

KARACHI: Businessmen have said that even if Pakistan succeeded in reaching a staff level agreement with the International Monetary Fund (IMF), a default risk looms in the foreseeable future unless the business environment was reformed.

Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Irfan Iqbal Sheikh on Thursday said that Eurobonds account for only 4 percent of Pakistan’s external debts as opposed to the much higher ratios for the countries that have defaulted. And, “achieving debt restructuring on all other major external debts after the programme restructuring should not be an issue for a prudent economist or a finance minister – on the back of economic cost of the floods”. Sheikh added that the only answer were pro-business reforms, policies and economic agenda – enabling the business community to increase exports; unleash import substitution; build foreign exchange reserves; enhance the external debt repayment capacity; create jobs and generate tax revenues to fund the country’s development needs.

He apprised that the FPCCI has reached a conclusion that Pakistan needs continuity in economic policies to restore investment sentiment in the country; and, the economic agenda setting should be unanimously agreed by all the political parties for the next 15 years.

He explained that the country faces a deficit of $20 billion in the next 18-24 months alone to meet its external liabilities. “There is no way that even another IMF programme can offer that much of financing,” Sheikh pointed out.

Therefore, he suggested that the government should sit with the business community to chalk out a plan to enhance exports and earn precious foreign exchange in a logical, incrementally sustainable and tangible manner.

The FPCCI chief expressed his profound concerns that the State Bank of Pakistan (SBP) was still expecting the business community to wait for the gradual lifting of import curbs, even after the staff-level agreement was clearly in sight. “Industry, production and exports will continue to suffer through this approach that makes no economic sense,” he added.

The FPCCI president reiterated that access to finance and export financing should be made possible at an affordable rate. He maintained that the textile industry can easily earn $25 billion in a year; IT and ITeS $5 billion and remittances can touch $35 billion if the right economic agenda can be set in consultation with trade and industry stakeholders.

“The three aforementioned targets can be achieved in a very short-term, ie less than a year, through the right policies – and, this would be hard-earned cash to stay in the country, not the loans,” he added.

FPCCI chief reiterated that the government should admit its failure that it could not get any waiver, leverage or concession despite the country having suffered one of the worst, wide-spread and economically costliest floods in modern human history, which resulted in the well-documented losses of $30 billion.

Sheikh added that the first priority of the government, after the 9th tranche of the ongoing EFF of IMF, should be to approach multilateral and bilateral lenders for debt restructuring to create a breathing space for the economy before the 10th and 11th reviews take place, expected to be conducted collectively. Once achieved, rupee should stabilise taking some pressure off in terms of reduced repayments in foreign exchange; policy rate can be brought down, bringing down the repayment of domestic debt; imports of raw materials and machinery can be resumed to their normal levels and fiscal space can be created for development projects in infrastructure, energy, agriculture and the special economic zones (SEZs) through reducing the debt repayment allocations for the upcoming 2-3 years.