Country on the verge of stagflation?

The government decisions to allow tax authorities' access to bank accounts and the recent increase in electricity and gas tariffs has negatively impacted on the country's investment climate and private sector is reluctant to participate in investment activities, said former finance minister Salman Shah.
Talking to Business Recorder, Shah said he sees a reshuffle in the cabinet as the present one has failed to deliver. He said that the decision of the economic team may propel the country into stagflation. Shah stated that the short-sighted economic policies of the present economic team would cost govt heavily. The negative borrowing by the private sector during the first quarter of the current fiscal year is an indication of poor investment climate in the country and the government should have pursued the policies to energise the private sector for growth prospect and employment generation. The present state suggests that the private sector is no longer taking credit from banks and instead is retiring old loans. This trend is very dangerous for the growth and economic prospects of the country, he added.
Former finance minister said the economic policies being pursued by the economic team may lead to a request to the International Monetary Fund (IMF) for modification in the Extended Fund Facility (EFF) which should be followed by a reshuffle in the Cabinet. Dr Ashfaque Hasan Khan former principal economic advisor of Finance Ministry said negative borrowing by private sector simply indicates that the economic polices are not being viewed as helpful for improvement in the economy.
He said private sector investment is premised on a forward looking approach and the current decline in investment by private sector indicates its concerns about the efficacy of the economic policies. Ashfaque added that the private sector appears to be nervous and does not see things improving.
Sources said the government borrowing from commercial banks would increase the cost of debt servicing projected in the budget for the current fiscal year following increase in discount rate by the State Bank of Pakistan. He said the government has to limit its borrowing from the commercial banks to remain within the budgetary allocation for debt servicing in the current fiscal year. Sources acknowledged that the government borrowing during the first quarter was relatively high.