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Persistently eroding value of Pak rupee

Once upon a time, Pakistan Muslim League headed by Mian Mohammad Nawaz Sharif raised the slogan of ‘breaking the begging bowl’. However, after creating history and becoming Prime Minister of Pakistan for the third time, his sole objective seems be living in the most luxurious life on borrowed money. During the present term, his focus also shifted away from accelerating GDP growth and keeping the economy on track to following popular policies that can help him become Prime Minister of Pakistan for the fourth time. Those who don’t agree with this narrative must look at three mounting deficits: 1) current account deficit, 2) budget deficit and above all 3) confidence deficit (mother of all evils that does not allow the local entrepreneurs to invest money in their own country). The rule of thumb is, “If the local investors are shy, policy planners should not expect any foreign direct investment in the country”.

In the recent past, trade deficit has been on the rise because the government has been failing in boosting exports and containing imports. It was not a secret that that there were deliberate efforts to increase international oil prices of crude oil by the producers. However, the policy planners completely failed in taking corrective measures that could minimize the adverse impact of hike in oil prices. It is on record that international oil prices have gone up by almost 30% since June 2017. It is also anticipated that price may go up further as the temperate goes down in winter, added to these are supply interruptions due to the geopolitical factors. It is also evident that local manufacturers have been losing their competitiveness in the global markets, mainly due to the persistent hike in the cost of doing business.

According to media reports, now international oil prices are hovering near 2015 highs due to the declining stockpiles and supply interruptions. On Thursday with trading activity drying up ahead of the New Year, prices continued upward trend. Heading into 2018, the market participants expect supply to remain relatively tight due to ongoing production cuts led by the Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC) as well as top producer Russia. Both the international benchmarks remained on upward trajectory. US West Texas Intermediate (WTI) crude futures hovered at US$59.69 a barrel by 0336 GMT, earlier touching US$60 a barrel for the first time since June 2015. WTI received support from a report by the American Petroleum Institute (API) showing drawdown in inventories. Brent futures inched lower to US$66.50 a barrel, having hiked toUS$67 barrel, a level last seen in May 2015. This suggests that even if the quantities of crude oil and petroleum products remain at the same level, the hike in prices would erode country’s foreign exchange reserves at a faster pace.

The immediate fall out of the rise in international oil prices is inevitable hike in the prices of petroleum products in Pakistan. The Oil and Gas Regulatory Authority (OGRA) is expected to raise the petroleum products prices beginning January 2018. As possible repercussions of erosion in the value of Pak rupee, the regulatory body has sent a summary for the increase in the prices of petroleum products to the federal government. OGRA has recommended per liter increase in prices, it is Rs5.20 for motor gasoline, Rs4.50 for high-speed diesel (HSD), Rs6 per for light diesel oil and Rs10 for kerosene oil prices. The new prices will come into effect from 1st January 2018, if the federal government approves the OGRA recommendations.

 

The government is likely to announce an incentives package to boost the economic activities in the country, which also include measures to reduce the cost of production. The plan is aimed at boosting country’s exports to contain ever rising current account deficit. The business community had recently held meetings with Prime Minister in Islamabad and demanded to reduce the power tariff along with reducing gas infrastructure development cess. They had also asked for issuing sales tax refunds on time, reducing cost of doing business, providing equal opportunities to Pakistani investors in China-Pakistan Economic Corridor (CPEC), reduction in taxes, revamping of Trade Development Authority of Pakistan (TDAP) and abolishment of withholding tax.

According to some analysts, Pakistani business community is always seeking incentives and exemptions and the most notorious are the manufacturers and exporters of textiles and clothing. Over the years, they have not learnt to live without the crutches of government support. To large extent the blame for making them perennially dependent on incentives/rebates goes to the government. The state of affairs has prevailed over because manufactures and exporters of textiles and clothing have always been part of the ruling junta. They have created the illusion that if Pakistan’s textiles and clothing industry is closed the entire economy of the country would collapse. According to some critics the time has come to close down obsolete/inefficient mills. The inefficiency of Pakistan’s textiles and clothing industry can be gauged from the fact that manufacturers have been failing miserably in getting third-party manufacturing contracts.

The time has also come to either make TDAP efficient or close it permanently. The authority has been given the mandate to promote Pakistan’s exports. It has billions of rupees annual expenditure but the entity has failed in playing its due role. Resignation of S. M. Muneer from the chairmanship of TDAP is the biggest proof that he had also lost hope in the entity. Redtapism is an unavoidable menace of any public sector entity, but induction of non-professionals, inefficient and even corrupt can ruin an entity like TADF, which has done some good work in the past.

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