Dr Pasha's concerns

In an interview with Aaj TV network, Dr Hafiz Pasha, a former finance minister and a highly reputed economist of the country, advised the government to focus on increasing exports, especially when home remittances were declining. Pakistan should renegotiate FTA with China as the arrangement was very unfavourable to the country, with China's exports to Pakistan eight times higher as compared to Pakistan's exports to China. Hafiz Pasha regretted about the delay in the incentive package for exporters and stated that increase in exports was essential for the repayment of loans. He, however, appreciated the steps taken to allow zero-rating to key export items and increase the payment of pending refunds. The government should extend maximum relief to the value-added exports in the next incentive scheme. GDP growth rate during the current year may be between 4 and 4.5 percent due to lower than expected growth in industrial and agriculture sectors. Pakistan had also to consider its policy of exchange rate. The US dollar is on the rise. Pakistani currency against euro was also at a disadvantage and would hurt exports. External debt of the country had increased phenomenally and dollar 2 billion were added to the external debt during the last four months. Domestic debt is also an issue but it could be repaid with printing of more currency notes while the real challenge was a huge increase in external debt during the last three years. Credit to the private sector was also not available as the government was the major borrower from banks. While external debt had jumped from dollar 61 billion to dollar 73 billion, the investment rate in the country had not increased. As calculated by Dr Pasha and his team, unemployment rate had risen to 8 percent and the disturbing aspect was that unemployment rate of graduates was 20 percent which constituted a crisis. Inflation was, nonetheless, on the lower side.
We feel that Dr Pasha and some other independent economists of the country have been doing a wonderful service to the country by highlighting emerging deficiencies of the economy which needed to be addressed to stabilise the economy and place it on a sustainable growth trajectory. Their services are particularly welcome at a time when the government is constantly gloating over its achievements and selling illusions of a better future without laying the necessary foundation for such prospects. The sad aspect is that some of the economists on the payroll of the government are also singing the same tunes to please the authorities to win their favours and advance their careers. Such a diplomatic or hypocritical attitude could reward certain individuals but is never in the long-term interest of the country. In the instant case, what Dr Pasha has said is perfectly valid and cannot be even questioned for argument's sake. Dwindling exports is probably the biggest challenge of the country at the moment. This is so because home remittances, FDI and other bilateral flows which could support the balance of payments are also on the decline. The fall of eight percent in the export of goods and services during the current fiscal year so far is a clear indicator of the things to come. The decline in sowing area of cotton by 20 percent, expected production of only 11 million bales and estimated import requirement of 3 million bales of cotton this year would definitely add to the pressure on the balance of payments of the country. External debt is already hitting the roof and authorities are planning for more borrowings with glee without realising the fact that they are mortgaging the future of coming generations and putting a very heavy burden on our external sector. In order to increase exports, the government is trying to offer incentives in the form of zero-rating of key exports and high cost packages. Such incentives may help exports to a certain extent but are a huge burden on the budget and would not increase exports on a long-term basis. A potent instrument of narrowing the current account deficit is encouraging exports and discouraging imports through an appropriate adjustment in the exchange rate but the government is trying to avoid it like plague. There is no doubt that depreciation of the rupee will increase debt servicing cost of the country in rupee terms and cause some inflationary pressures but the risk on the external sector was too great to be disregarded for political expediency. We believe that Dr Pasha is both mature and purely professional. Towards the end of the interview, he remarked that he was only trying to tell the government that there were still some areas of improvement. It will also be good on the part of economists in the government to take such a balanced view so that political leaders could see the country's problems and their options more clearly and act prudently to further the cause of the country and their constituents.