EDITORIAL: Bank deposits grew by 15 percent in one year to 22.92 trillion rupees in February 2023 compared to 19.91 trillion rupees in the same month last year as per the State Bank of Pakistan (SBP) with the government borrowing 83 percent of all deposits or 19 trillion rupees was borrowed by the government just in the last month.
Two observations are in order. First, the rise in deposits is not attributable to either a rise in domestic savings, a desired objective for any government but particularly Pakistan with a very low savings rate of less than 10 percent, as savings have an identity with domestic investment; nor to a rise in remittance inflows as they have been declining due to the government’s flawed policy of controlling the rupee value without the requisite foreign exchange reserves that would have allowed market intervention.
As per the Finance Division’s February 2023 Economic Update and Outlook, remittances declined from 18 billion dollars (July-January 2021-22 to 16 billion dollars in the comparable period of 2022-23).
It is however attributable to the fact that on 26 January 2023 the rupee was decontrolled as it was a prior condition for the ninth review talks with the International Monetary Fund to commence, leading to the rupee tumbling to 281 this Monday past.
Thus in spite of a decline in remittance inflows the eroding rupee value accounted for higher rupees per dollar available to those who received remittances through official banking channels, which led to a marked increase in bank deposits in rupee terms.
Second, February Outlook and Update reveals that credit to private sector declined from 806.8 billion rupees July to 28 January 2021-22 to 435 billion rupees in the comparable period of 2022-23 no doubt partly due to the rise in the policy rate from 9.75 July-January 2021-22 to 17 percent in the comparable period of this year (a rate which has been raised further to 20 percent), reflecting large-scale manufacturing growth of negative 3.7 percent this year compared to positive 7.7 percent July-January 2021-22.
The outlay on Public Sector Development Programme declined from 288 billion rupees July-December 2021 to 162 billion rupees in the comparable period of 2022 revealing the disturbing fact that the bulk of government borrowing was for current non-development expenditure (with no input into the Gross Domestic Product) – a policy which is highly inflationary.
Therefore, for the country’s incumbent economic team leaders to claim ad nauseum that inflation is entirely due to the policies agreed with the IMF is inaccurate and their own contribution needs to be acknowledged and hopefully mitigating measures taken immediately to end this heavy reliance on deficit financing.
All macroeconomic indicators are performing very poorly and sadly the reliance of the economic team leaders is to ease the IMF team’s concerns at their own foot-dragging in meeting prior conditions as well as the rising trust deficit due to repeated violation of the spirit of the ongoing Extended Fund Facility programme indicated by reversing the 26 January decontrol of the rupee decision mid-February.
More recently reports suggest that the government will formally request the United States to use its position in the IMF Board to push the ninth pending review through.
Ned Price, the US State Department’s Spokesperson, stated on 10 March 2023: “we want to make sure that the resources that Pakistan has itself, the resources that the United States is contributing, that other countries are contributing and the resources that have and will continue to come from international financial institutions, they’re managed responsibly as part of responsible and responsive governance.”
It is indeed unfortunate that official data suggests that the economic team is neither managing responsibly given the massive rise in current expenditure with the austerity package not expected to generate more than 20 billion rupees in a year’s time as all major components of current expenditure are untouched, nor is showing any sign of responsive governance.
It is, therefore, about time the 83 plus cabinet led by Shehbaz Sharif acknowledged that the task at hand is gargantuan and the economic team leaders simply not qualified to deal with it; and their policies reflect no understanding of the serious nature of the issues that bedevil the economy today which are an outcome of sustained flawed policies of the past including those implemented from 2013-17.
Copyright Business Recorder, 2023
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