EDITORIAL: Prime Minister Shehbaz Sharif has expressed his administration’s determination to extend the utmost support to exporters and producers to enable them to serve the country at full capacity.
The economic logic behind this determination is evident: the higher the output, the higher the employment levels and the lower the inflation rate, which would go some way in easing ongoing public discontent with poverty levels at a disturbing high of 41 percent, a few percentage points higher than in Sub-Sahara Africa.
The concerning factor in this pledge by the Prime Minister is the fact that while output has declined due to severely contractionary monetary and fiscal policies yet their reversal any time soon is unlikely as the staff-level agreement reached on 12 July 2024 for the next International Monetary Fund (IMF) programme will almost certainly not be approved by the Fund Board if there is any easing of these policies; and if the Fund loan is not approved then as revealed during the quarterly reviews of the 2019 Extended Fund Facility and the June 2023 nine-month-long Stand-By Arrangement further rollover by the three friendly countries of around 12 billion dollars would be under threat pushing the country towards default.
The Fund’s and the bilaterals’ rationale for not providing subsidies to the exporters and productive sectors has merit on four counts: (i) these sectors are extremely influential and have been given monetary and fiscal incentives by most if not all previous administrations’, inclusive of export subsidies to the sugar sub-sector; however, seventy-seven years after independence the productive base has not varied; it remains reliant on farm output and imports as a major input with prices of these products in the international market fluctuating significantly from one year to the next as, unlike in the domestic market, their prices are determined by supply and demand; (ii) no sector that has been supported in the past became resilient defined as being able to compete internationally without state largesse; (iii) the fact that the rest of the population has borne the brunt of state largesse through their tax rupees as well as through lower outlay on pro-poor initiatives and development expenditure it stands to reason that the policy of support has fewer adherents. In this context, it is relevant to note that during the Senate Standing Committee on Finance and Revenue the Minister for Planning, Development and Special Initiatives Ahsan Iqbal expressed his concern over the possibility of 200 billion to 400 billion rupees cut in the unrealistic budgeted Public Sector Development Programme (PSDP) of 1.4 trillion rupees; and (iv) finally, to this day the country exports its surplus rather than developing a productive base that is focused only on exports. One would hope that the IT sector may be extended some support to ensure that its full potential is realised.
While government circles are focused on easing market concerns by highlighting favourable macroeconomic indicators notable amongst which are a contracting trade deficit and rising foreign exchange reserves yet a closer look at these positives reveal that the trade deficit has declined because of import contraction (last fiscal year imports of fuel declined by 4 billion dollars with obvious negative repercussions on productivity) and reserves are largely debt-based.
What is required for the economic team leaders is to abandon past policies that have brought the country to its current long standing economic impasse and instead begin to implement out of the box solutions that include reforming the tax sector not as is the continuing policy focus to generate higher income for the government but to render the tax structure more fair, equitable and non-anomalous while at the same time slashing current expenditure to ensure that the budget deficit is within sustainable limits, which would automatically increase our leverage with lenders - both international and bilateral – to negotiate terms with the least negative implications on the general public.
Copyright Business Recorder, 2024
Comments
Comments are closed.