The economy of Pakistan is struggling with growth. Various economists accept that economy is going through its most critical phase. The government official identified that the economic reform agenda is bringing stability to the Pakistan’s economy; some stability has already been recorded and based on these reforms Pakistan would attain long-term economic growth and prosperity which will benefit the low income as well as middle class.
Present statistics identified that the current account deficit has dropped below $14 billion. Previous year it was recorded at $20 billion. The present Government of Pakistan has implemented measures to make imports more expensive, so that people start consuming domestically produced products/commodities. As we know that when citizens utilize products made in our country it helps domestically industrial units and declines our imports. The lower current account deficit shows the government’s strategy of encouraging fewer imports and rising exports is working. Statistics also showed that imports have reduced from $61 billion to $55 billion, which means the country has saved $6 billion this year. These new policies are the result of a program Pakistan signed with the IMF. It is also recorded that after a tumultuous year, the dollar finally started to settle in July after the IMF released its first tranche of $1 billion. Statistics also showed that another major effect of the government’s new policies is that fewer refurbished or used cars are being imported. Between 60,000 to 70,000 cars were being unlawfully imported yearly at a cost of $1.5 billion. It also affected the domestic automobile industry. Now, more automobile manufacturers have set up shop in the country and will be assembling cars.
Sources, even say that the trade loss has also declined from $38 billion to $31 billion and more people are filing their taxes. The rising inflation and unemployment but it is expected to take another 2-year to get the economy on the right track. Sources also recorded that the State Bank of Pakistan (SBP) has agreed to implement a market-based exchange rate which implied that it would no longer set the limits with banks within which the rupee would be allowed to fluctuate and to increase the discount rate to mop up excess liquidity. The former policy accounts for a rise in rupee terms of essential items chiefly oil and products, a major import item for Pakistan, with negative across the board repercussions on local inflation that is now in excess of 11 percent.
The increase in discount rate has contracted credit to the private sector, with a consequent negative impact on productivity and this from an administration that constantly states that private sector would lead the impetus to growth. Growth of large-scale manufacturing fell previous year, a trend that is unlikely to be reversed this year given the country’s economic teams’ and Fund’s projected growth rate of 2.4 percent, while sources also identified that SMEs (small and medium enterprises) are complaining of a fall in clients and have begun laying-off workers.
Furthermore, the private sector has been unable to increase salaries with the objective of keeping take home pay at par with the rate of inflation, though the Government of Pakistan has increased salaries of public sector employees out of enhanced budgeted collections from the taxpayers’ money, and in some instances private sector staff has been subjected to the prospect of accepting a fall in salaries or else face redundancies. All of the foregoing fall in the category of ‘Pain’ that has to be endured to put the economy back on the right trajectory. It would therefore, be helpful if the economic team was to define what they mean by ‘long-term.
It is also important to note that ratings agency Moody’s identified that Pakistan and India, both economies are already facing near-term problems, and a sustained military conflict will risk resulting in weaker growth by a prolonged hit to business as well as consumer confidence, also foreign direct investment (FDI). India’s fiscal dilemma between attaining its fiscal consolidation targets and supporting sustainable job creation and investment would be further challenged by a more pronounced slowdown in Gross Domestic Product (GDP) growth. Previous year, Moody’s sustained credit profile of Pakistan at B3 negative, which reflected the sovereign’s high external vulnerability, weak debt affordability, and very low global competitiveness. India has Baa2 stable credit rating.Furthermore, Moody’s urged a sustained situation of conflict would potentially impair Pakistan’s access to external financing and pressure foreign-exchange reserves, but it is also expected that the presently inked IMF program and other bilateral and multilateral borrowings will give some external buffers.
Sources recorded that the present Prime Minister of Pakistan maintains that the beneficial impact of the fund program will be evident within 6-month to a year, a view reportedly substantiated by his economic team in his private interactions with them. Perhaps the Government of Pakistan will perform well to revisit the program risks revealed through IMF in the staff-level report which shows that other risks, counting those related to local security situations, global trade, growth in chief trading partners, oil prices, and tighter financial scenarios, could exacerbate these challenges – challenges associated with failure to implement the program situations because of their severe socio-economic impact on middle and low income groups. It is said that SBP picked up on one local challenge revealed through the Fund out of various and stated that continuity of strategies is Pakistan’s top issue.
As part of the 3-year contract with IMF but the policy makers need to make some serious changes. One of the biggest changes was to stop controlling exchange rate in Pakistan. Imposing the higher taxes on utilities would present negative impact on lower as well as middle class in the country. The Government of Pakistan must held those who have made and involved in frauds in Pakistan.