Future looks bright

The IMF recently released $452 million second tranche, bringing the total disbursements so far to about $1.45 billion. While doing so, the IMF in its first review of Pakistan's economic performance has acknowledged that the government reforms programme is on track and producing results, the business climate has improved and market confidence was returning. Above all, the IMF acknowledged government's sincerity of implementing structural reforms, particularly in the purpose public sector.

What is remarkable and unprecedented in recent years is the zero budgetary borrowing from State Bank of Pakistan. Whereas overall current account deficit shrunk by almost 74 percent in the first quarter of fiscal year.

Total imports fell by 23 percent, while exports were showing some signs of recovery - up two percent year-on-year, which is mainly driven by food and textiles.

In the last three months, Pakistan Stock Exchange (PSX) became the best-performing market as PSX benchmark KSE 100-Index gained around 10,500 points. Total foreign investment reached $2 billion mark as against $147m last year. The benchmark should be $ 8 billion which the country achieved in 2007. There is a good chance now to aim for it.

The IMF is satisfied that transition to a market-determined exchange rate which allowed the rupee to find its new equilibrium quickly, thereby, successfully correcting the 'exchange rate overvaluation' of the last five years. Similarly, the Moody's upgraded Pakistan's credit rating outlook to stable from negative.

All these are positive and the government must capitalize on these positive sentiments wisely. It must also plug in the gaps which are sucking good money for a bad cause.

What remains of utmost concern are rising inflation, growing unemployment, sluggish business transactions. These factors are leading to a cash flow crunch and slowdown in business activities. All these factors adversely the poor and lower middle class the most.

The government's support programme for this segment must be rolled out on priority - as also advised by the IMF.

The real estate and construction sector, however, continue to remain out of the economic growth, more on account of fear of accountability and wealth declaration than the revised taxation tariffs imposed by FBR. This segment is the prime mover of business transactions which can well mobilise the much-needed allied sectors feeding the construction industry.

A bit of positive news on inflation is that the IMF lowered the inflation projection for 2020 fiscal year to 11.8 percent, down from 13 percent earlier. The report confirmed that inflation had started stabilizing. It indicated that the SBP's current key discount rate.

The government aims to bring it down to 10.8 percent by mid 2020 and to 5 percent in medium term which appears too optimistic.

The major drain of good money is the public sector enterprises which continue to suffer loses. Moreover, the performance of public power generation and distribution sectors is far from satisfactory.

Although there has been improvements in a number of key macroeconomic indicators, we are far from describing the current state of economy as stable. The good news, however, is that the nation is on the right track and future looks promising.

The biggest threat to the economy continues to be political uncertainty and uncalled for unwarranted interventions by state institutions and legislators in economic matters related to nation's economy - all at the expense of public welfare.

(The writer is former President - Overseas Investors Chambers of Commerce and Industry)