ISLAMABAD: “Poverty rate has risen to 44 percent and inflation is still in double digits.” Dr Hafeez Pasha, former finance minister stated this while speaking at “Paisa Bolta Hai” with Anjum Ibrahim.
Core inflation is still high and that is closer to the real impact of prices on the general public. Electricity tariffs that are subsidised for the vulnerable are used for the price index; it appears that Pakistan Bureau of Statistics (PBS) was under pressure for making some adjustments, he added.
Dr Pasha while talking about unemployment rate in the country said that it has reached a historic high of around 10.8 percent compared to the average of 5-6.5 percent and real wages have declined by up to 30 percent for the last three years.
Positive GDP growth rate unlikely?
He said that the general public was very worried about the ongoing situations.
Dr Pasha stated that there are two parts of the balance of payment - current account which is in surplus largely due to physically controlling imports for quite some time as is evident from automobile, a major industry whose imports were reduced to such an extent that its productions decreased by 30-35 percent.
Besides this, imports were restricted for other sectors as well, he added. Exports increased earlier due to ban by India on rice exports as well as the situations in Bangladesh, but in January exports witnessed only a nominal increase.
The government has imposed one percent tax on exporters, while India and Bangladesh are giving many incentives to exporters.
“We did not give a good rate to exporters by fixing the exchange rate. Secondly tax was imposed on exporters and thirdly energy prices including electricity and gas prices were increased. But the financial account has weakened and the rate of inflows either in investment and loan financing have slowed.
People are reluctant to invest in industrial sectors on account of high energy prices including gas and electricity, while the latest policy for captive power plant will further increase prices.
Large Scale Manufacturing (LSM) sector could not register growth due to these challenges, and investment in Pakistan’s manufacturing sector last year was even lower than the level 25 years back,“ said Dr Pasha.
Talking about exchange rate, he said that the International Monetary Fund (IMF) said in its staff level report that the rupee value should depreciate by 7-7.5 percent, which is reasonable.
Real Effective Exchange Rate (REER) data released by the SBP shows it at 107, which indicates that the rupee was over valued by 7 percent. However, due to restrictions on imports, the trade deficit was contained, he added.
He further said that policy rate was kept very high for a longer period, taking it 22 percent which is another contributor to investment remaining negligible during the last two years.
He urged the Monetary Policy Committee to bring the interest rate to single digits to achieve the growth rate projected by the Fund at 3.2 percent for the current fiscal year that is unlikely to be achieved given the ongoing fiscal and monetary policies contributed to growth less than one percent in the first quarter.
Dr. Pasha said that several performance targets set under the IMF programme are unlikely to be met and added that it will become clear if Pakistan will be given some space during the first review scheduled by the end of this month under the Extended Fund Facility (EFF) programme.
Dr Pasha suggested that the data presented by the Governor State Bank of Pakistan (SBP) Jameel Ahmad with the Senate Standing Committee on Finance and Revenue on January 6, 2025 should be synchronised with data available with Economic Affairs Division.
Copyright Business Recorder, 2025
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