Worst is over

PM Shehbaz Sharif has skillfully dodged a potentially disastrous sovereign default – but at a huge cost to his political capital. For the PM, it was national interest versus party interest. The good news is that the period of maximum economic stress is behind us. For Pakistanis, the worst of inflation is behind us. To be certain, the US, the world’s largest economy, has gone into a recession (in the US, a recession is defined as negative GDP growth for two consecutive quarters). The Eurozone – Belgium, Germany, Ireland, Spain, France, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland, Greece, Slovenia, Cyprus, Malta, Slovakia, Estonia, Latvia and Lithuania – is also following America’s lead into a recession.

For Pakistan, a global recession means a bad thing and a good thing: a lower demand for our exports is the bad news and a lower price of oil in the international market is the good news. For Pakistan, on the balance, I project a lower trade deficit and a lower current account deficit. For Pakistanis, I project a lower rate of inflation.

Pakistanis are up against two types of inflationary pressures. One, ‘imported inflation’ as a consequence of the rise in the global energy prices and the increase in the price of palm oil. Two, ‘cartel pricing’ in the domestic market. For the record, the government of Pakistan has no control over ‘imported inflation’ but hasn’t done a thing to break the ‘pricing power’ of domestic cartels.

As the developed world heads into a recession, Pakistan’s corporate entities – including banks – are in good financial health. As the developed world heads into a recession, consumers in Pakistan find themselves under unprecedented inflationary burden. Yes, there’s a need to break the ‘pricing power’ of some half a dozen domestic cartels.

As the Federal Reserve, the US central bank, aggressively raises the rate of interest the US dollar is gaining ground against all major currencies. Over the past seven months, the rupee has lost 16 per cent of its value against the dollar. Imagine, the euro is now at par with the dollar for the first time in 20 years. I project a lower rate of rupee depreciation in the coming months; the worst on that count is also behind us.

The PML-N-led government is not doing what it should be doing: sending the right signals to the business community and the financial markets. The government ought to avoid signals that slow down the wheel of the economy. A tax of 20 per cent on ‘deemed income’ on immovable property is the wrong signal as it has slowed down the wheel of the economy (DHA Lahore used to transfer an average of a hundred files a day. That average has now gone down to a dozen a day).

Over-regulation is doing two things: undermining private-sector competitiveness and killing job growth. The PM should order his ministers to ‘submit a list of every wasteful and unnecessary regulation’ that is slowing down the economy, and killing jobs.

Our economy is no longer on a knife’s edge. The government must now actively search for economic stimulants to jumpstart the economic engine and provide some relief to the people. The worst may be behind us but economic challenges persist.

The writer is a columnist based in Islamabad. He tweets @saleemfarrukh and can be reached at: farrukh15@hotmail.com