Endorsement of government policies

At a time when there is a lot of criticism on government's economic policies from various quarters, Citibank, Pakistan has opted to be different and given a ringing endorsement to economic policies of the present government. Talking to journalists at Citibank Media Roundtable in Karachi, its CEO, Nadeem Lodhi, expressed satisfaction over the current policies of the government and called for continuation of these policies. Things would be much better if these policies are continued, he stated. It is evident that Pakistan's current account (C/A) deficit is under control, imports are declining, trade numbers are good, markets are stabilising, exchange rate is favourable, investor confidence is returning and there are notable fundamental changes on the fiscal side. Highlighting the risks to Pakistan's economy, the CEO of Citibank said that there are only three to four risk factors, including the FATF blacklisting challenge, which is not possible right now. Pakistan and India tensions, the Iran-Saudi proxy conflict and the possibility of a rise in oil prices are additional risk factors. A number of foreign companies are looking for investments in Pakistan and investment in Special Convertible Rupee Account has reached dollar 1.3 billion.

Moiz Hussain Ali, Country Head of Treasury and Markets, termed the FATF challenge a geographical issue and opined that Pakistan may take a long time to meet the FATF conditions. "Our business will not be affected due to FATF as we can handle the situation" he remarked. Pakistan's economy has paid a heavy price due to exchange rate fixation and the market-based exchange rate will help reduce C/A deficit, boost tax collections and create new jobs. The SBP is expected to soften monetary policy in the near future. The IMF programme is good for Pakistan as the Fund is asking for implementation of those economic reforms which are actually required for long-term growth.

Obviously, the endorsement of government's economic policies by officials of the sole US bank operating in the country is very encouraging for the government's economic managers and has come at a time when it is most needed due to the relentless criticism by the opposition parties and also social scientists within the country. The irony, however, is that people of the country tend to believe in those negative observations because of the high inflation and rising unemployment that affect their every day life and also because of lack of knowledge about the ground realities and the intricacies about the working of the economy which are difficult to understand. Also, it is a question of the glass half full or half empty. Those who support the opposition parties would never like to appreciate the present government for refilling the glass half full which is normally the first stage of a success story while some weaknesses could always be found to draw a government's attention to its shortcomings. Anyhow, it needs to be recognised that the previous governments had left the economy in an extremely poor shape. Not only were twin deficits huge, these were also expanding. Moreover, indebtedness of the country was rising rapidly while FDI had dwindled to a very low level. Treading this path would have forced the country to default on our liabilities and almost diminished the prospects of growth and price stability. The present government had to change the course altogether through very difficult policy measures which it did not hesitate to undertake and in fact went for the overkill. The previous government did not like to depreciate the rupee, raise the electricity and gas prices and initiate other measures to mobilise higher level of taxes for political expediency but the present government had no option but to go the IMF and accept the $ 6 billion loan with strings attached. The results of government's efforts are evident in the form of a significantly reduced C/A deficit, decline in imports, stability of the Pak rupee in the exchange market and growing investor confidence. These gains should lead to an improvement in fiscal deficit. The government must work towards the requisite structural reforms in the power and energy sector in order to deal with the fiscal deficit challenge in a meaningful manner. This may delay easing of inflationary pressures and revival of growth.

Citibank seems to be spot-on about our FATF status. While the present status is likely to continue for some time, it will take more time and effort to shed the label of grey list. Finally, although the observations of Citibank would sound like music to the ears of the economic managers of the country, there is no room for complacency and we have still a long distance to cover before declaring victory on the economic front. The Asian Development Bank (ADB) said on 11th December, 2019, that the signs of stabilisation are emerging in the economy. Such endorsements are welcome but these signs are needed to be converted into solid revival of economy and a visible improvement in the standards of living of ordinary people.