Realistically speaking, the economy has improved

Making comments on financial issues without any expertise in the subject matter or without receiving concurrence from the experts has become a widely adopted approach.

Recently, I saw numerous remarks regarding a $600 million loan carried at an interest rate of 11%. But I have not yet seen the specific information regarding the loan transaction, including the duration and any further terms or circumstances associated with it.

Considering the risk premium, I endorse the action of the administration since they have recognised the significance and the need of securing the necessary funds to address the crucial shortfall. Any delay in obtaining the IMF assistance is not viable for the economy following the prior short-term borrowings of $ 5.5 billion from the Gulf countries that have had to be extended through many rollovers.

Pakistan is currently facing challenges in acquiring new funds or additional funding from the Gulf states as a result of borrowing constraints from elsewhere, thereby making it a difficult task.

Further, if we recall, five years ago there was a heated controversy about Pakistan acquiring short-term finance from other countries equal to roughly $ 4 billion that came through SCRA and invested in 3-month Treasury Bills yielding nearly 13% to bridge the gap and boost SBP’s foreign exchange Reserves. However, meeting that need was essential at that time as the nation had no alternative.

Credit rating of Pakistan by Moody’s in 2020 was B3, which was significantly higher than the recently upgraded Caa2 or S & P’s CCC+.

Therefore, why is there such intense debate without acknowledging the prior instances of borrowing as a point of reference? While analysing or advancing an argument, it is a professional task to evaluate and present a more explicit presentation in order to enhance clarity and make the arguments more convincing. Otherwise, the story presents a biased perspective or it might result from limited understanding and inadequate knowledge of the facts.

In my perspective, rather than relying on misleading narratives, it is necessary to modify our behaviours and pessimistic mindset. Instead, we should engage in open and analytical discussions to evaluate the advantages and disadvantages of the subject matter with a view to contributing to efforts aimed at resolving the contentious issues.

However, the unfortunate truth is that an author is often lacking both the necessary qualifications and proper expertise in the subject matter. Thus, the readers and viewers are unable to determine the extent of the harm the ill-informed “experts” are indirectly inflicting on them.

One example that I am citing now is when earlier hikes in petrol prices were unfairly labelled as “petrol bombs”, public at large was told that the escalation of tension in the Gulf waters, the Russia/Ukraine conflict, and supply limitations were the true factors behind the rise in oil prices in the global market, which are beyond the control of anyone.

My argument is that when the prices of petrol are systematically reduced, why do the critics hesitate to express their admiration and candidly acknowledge the fact that the price of petrol, which reached its highest point of Rs 331 a litre in September 2023, has decreased by nearly 25%?

Why aren’t critics expressing admiration for the commendable decline in petrol costs during the same timeframe? Why is the appreciation of the Pakistani currency (PKR) and the sharp drop in inflation not welcomed in the same manner? I am aware that my perspective would meet with disagreement from several people. Nevertheless, such gestures result in a balanced approach.

The primary focus should be on efforts aimed at reducing transportation costs, as well as a reduction in prices for food and other commodities that have been previously increased due to the depreciation of the Pakistani currency and the escalating oil prices in the global market. In the interbank market, the exchange rate (PKR) has risen from 307 per USD in September 2023 to 278 per USD lately.

The stability of the Rupee can be attributed to the lowering of pressure on the balance of payment situation, a reduction in the current account deficit, and the collective efforts of the State Bank of Pakistan (SBP) and fiscal authorities, which have also contributed to a significant increase in remittances.

PKR will continue to hold steady as long as economic indicators remain healthy and SBP’s foreign exchange reserves either maintain or increase their current level.

However, it’s not a permanent situation; several factors will influence future global oil prices and the imports. Any increase in oil prices will exert pressure on payments as a result of the increasing trade deficit, which is mostly unrelated to policy makers, as the rise in oil prices might be attributed to international market phenomena.

It is imperative to acknowledge and comprehend that the continuous borrowing from 2010 to till date is no longer of little importance.

We have undertaken significant short-term borrowing from China and Gulf countries; and obtaining such inflows has proven to be challenging. Over the course of more than ten years, I have consistently argued that our exports are insufficient to keep up with the pace of rising imports, and this situation is no longer viable for the economy.

The challenge lies in our attempt to build up our export volumes. Approximately 30-35% of the raw material must be imported to assist exports and foreign currency funding in excess is not available.

All the borrowed funds are absorbed to fund the deficit payments. Thus, the first and foremost requirement is that we must arrange liquidity. There is no other source to arrange funds.

Tax-to-GDP ratio and private sector activity are currently at historically low levels.

To obtain sufficient funds and cover the deficit in tax collection, it is necessary to increase the percentage by at least multiple times or at least by a minimum of 15%. This would create room for increasing spending; otherwise the resulting surge in economic activity will push the fiscal deficit to undesirable levels.

Alternatively, the economy lacks any other means to stimulate growth and generate income in order to sustain the significant disparity.

The essence of this comment is to ensure that readers comprehend and acknowledge the necessity for individuals to demonstrate resilience in their conduct. It is imperative to ignore such misleading claims and positions that are detrimental to the cause. It is imperative that we all engage in collective participation to improve our nation and ensure the well-being of future generations.

Copyright Business Recorder, 2024