Who is right?


The State Bank of Pakistan (SBP) says despite the global turmoil it sees no threat to Pakistan’s economy as its macroeconomic fundamentals remain strong and SBP is closely monitoring the movement of currencies in international and domestic markets.

In case of need it would take a stern action against speculators who are contributing towards weakening PKR against the US dollar which is the currency of intervention. We have, in these columns, argued all along for minor adjustment of PKR for Pakistani exporters to remain competitive.

However, successive governments have tried and failed to keep the parity unchanged for long periods of time resulting in the country’s forex reserves coming under pressure. Only when the Fund has forced a downward change, SBP has hurriedly complied with because the country needed the dollars since the alternate was default with all its painful consequences.

China has devalued its currency and would do so again, if it is required, to prop up its exports. Are we willing to do so too? The answer is in the negative. Our export sector has been complaining loudly but there appears to be a mental block in Islamabad on the issue and unfortunately SBP – despite being an autonomous entity on paper – appears to be an obliging body.

Both FBR and SBP are not even willing to lend a helping hand to this sector to help it overcome its liquidity crisis. In fact FBR has been instructing other bodies, including Trade Development Authority of Pakistan (TDAP), not to encash the cheques that FBR issued as it may adversely impact their revenue targets.

We, for one, fail to understand how the stock market index and PKR parity with the dollar are a gauge of Pakistan’s economic strength. Do the people have a feeling that there is improvement in their lives and they see a better future for their children? That is what matters.

All else are mere statistics for them and hardly do not impress them. People want protection of their lives and property. They want improvement in education and health facilities, civic amenities and above all, justice when needed – quickly and at affordable rates. This requires improvement in the country’s social indicators.

This means allocation of more money towards education and health. That in turn means higher collection of revenue. Merely borrowing for sake of improving the social indicators and then spending it on ostentatious lifestyle of those in authorityare acts that constitute a practic aimed at squandering away resources.

This has contributed to the mess that we find ourselves in today. Debt servicing consumes the highest chunk of the budget. Lifestyle of the rich and powerful does not reflect the poor state of finances of the country. Country’s economists do not subscribe to the official statistics on the economy being dished out.

The international media as well as the International Monetary Fund on the other hand seem to agree with the rating agencies that the direction the economy is taking is right. And, more time is needed for undertaking required structural reforms. The jury is still out on the issue.

Only time will tell who is right.

Eminent economist Dr Hafeez Pasha, for example, has called for at least six percent depreciation of PKR and allocation of a four percent cash subsidy towards exports. Pasha has also suggested giving poor farmers subsidised inputs instead of an across-the-board subsidy made available to exporters of commodities such as wheat and sugar.

Is the finance ministry listening? It appears not. The recent meeting of Fiscal and Monetary Board merely literally paid lip service to exports and gave a rosy picture of the economy. If this would be true then life in Pakistan would be heaven on earth. Is it?

It is claimed loudly that there has been a vast improvement in Karachi with the action of law enforcing agencies. Infrastructure and civic services have not improved at all. Perhaps they have in Punjab.