The State Bank of Pakistan (SBP) released its half yearly report July-December 2019 - a period when Pakistan did not report a single case of the Coronavirus (the first death from the disease was reported on 27 February 2020) and it had not been declared a pandemic by the World Health Organisation, by restating the achievements under the International Monetary Fund (IMF) programme. In the words of the report, "performance under the ongoing IMF programme remains strong, and international rating agencies maintained a stable outlook for Pakistan." This statement clearly reveals one disturbing, albeit consistent, stance by the SBP notably that the IMF programme conditions including structural benchmarks and, more relevantly, time-bound quantitative actions are not being revisited almost a year into the programme inspite of the pre-Coronavirus slowdown in growth, especially in the large-scale manufacturing sector.

The report itemizes the gains from the programme: (i) a fall in the current account deficit to a six-year low, on the back of a transition to market-based exchange rate but then proceeded to acknowledge that this stemmed from a reduction in imports that dampened economic activity through lower imports of raw materials/semi-finished products whereas 'export receipts have yet to contribute significantly' (read a couple of hundred millions dollars only) and was silent on the impact of the rupee erosion on the country's debt profile as each rupee loss vis-a-vis US dollar adds 100 billion rupees to debt; (ii) primary surplus on the back of a substantial growth in revenue is encouraging and domestic tax collection grew to its highest level since the first quarter of the current fiscal year. This claim too may be partially true as the primary surplus was not only due higher revenue but also on lower disbursement for development expenditure (only 8 percent of the budgeted amount was released during the first quarter and less than one percent for social sector development). Additionally, the tax target agreed with the IMF, considered entirely unrealistic of 5.5 trillion rupees, was revised downward to 5.23 trillion rupees by the end of the first quarterly review and the Federal Board of Revenue (FBR) failed to meet this revised target with a shortfall of 118 billion rupees; (iii) core inflation in both urban and rural areas remained stable during the first quarter of this year "reflecting the impact of stabilisation measures...headline inflation overshadowed the stability of core inflation, and consumer confidence further declined in November 2019 wave of the IBA-SBP Consumer Confidence Survey." The discount rate was no longer linked to core but to headline inflation the weeks after the staff-level agreement was reached with the IMF on 12 May 2019 (which include major import items like petroleum and products that are not impacted by discount rate adjustment) and the high rate has further contracted aggregate supply to the detriment of the productive sectors of the country; and (iv) spillover from global economic slowdown due to the virus will contribute to "SBP's disinflation efforts," though clearly the credit for such efforts are beyond any policy decision taken by the SBP but highlights disincentives that include cancellation of export orders and more pertinently given the reliance on hot money inflows due to the high discount rate prompting the report to acknowledge that "then debt market too faced selling pressure, as foreign investors took out over 1.7 billion dollars from T-bill investments in the month of March 2020 contributing to depreciation pressures in the foreign exchange market."

With respect to the real sector the SBP deemed it appropriate to add a special section titled state of competition in Pakistan. There is no doubt that influence peddlers in this country operate even in those sectors that in other countries operate under perfect market conditions (examples are sugar, cement, etc) due to the large number of sellers and buyers being unable to influence price. A World Bank study cited in the report shows that between 2003-11 sales worth around 1.1 percent of GDP were overcharged due to the presence of cartels, however, the SBP surely recognises the major factors that are impacting on the ability to compete today: (i) the utility rates are particularly high compared to the regional average for reasons attributed to their appalling performance and in this context, one must support structural reforms in the power and tax sectors agreed with the IMF under the programme as a means to improve sector performance and reduce prices; (ii) Pakistan's exports are mainly export items which are subjected to protectionism globally - farm output is subsidized by the West as is the inflow of exports of cotton and textiles, our major export items; (iii) refunds continue to pile up which lead to liquidity issues that in turn compel the manufacturing sector to borrow, at a high rate of return, which adds to the cost; and (iv) the Competition Commission of Pakistan does indeed need to be strengthened and its decisions not granted stay orders routinely; the report cited Saligo and Stern (1965) "that excessive protection provided to businesses distorted the market in that it led to too much investment in the consumer goods segment at the expense of gross capital formation activities in the investment goods and intermediate goods industries", adding that in the 1990s and 2000s industries were benefiting from subsidies worth 7 percent of GDP. This does need to change and the central bank did well to bring this issue to foreground. Hopefully, it would be addressed once the ongoing Coronavirus' rampage with which the SBP and the government are grappling to mitigate its negative impact on the lives of the citizens and the national economy is behind us. We are sure that the central bank does realise that the changed scenario dominated by the pandemic and its concomitant imperatives dictate obtaining major concessions from the IMF in the ongoing programme as mere tweaking of some of the quantitative conditions alone would not be sufficient.