Daily Times

The State Bank of Pakistan’s (SBP’s) decision to leave the policy rate at 10 percent where it has stood since November 2013 is a good indication of Pakistan’s delicately poised future, and gives reasons for optimism as well as doubt. The SBP was aware of the desire in the business community to lower the policy rate, but decided on balance to continue with a conservative monetary outlook in the interests of controlling inflation. The SBP policy rate is the interest rate it charges on loans to commercial banks in Pakistan. Lowering the interest rate allows commercial banks and businesses to borrow more, which drives investment but also increases the circulation of money. This can have a negative impact on inflation when the value of borrowed money drops. Pakistan’s high inflationary tendencies partly stem from financial mismanagement and overprinting currency, but also from chronic bouts of instability that play havoc with regular investment cycles and reduce investor confidence, which has subsequent effects on exports, production and employment. Inflation rates averaged between 10 and 14 percent from 2009 till 2013 while growth in the same period lagged under or hovered around three percent, with many people holding onto savings and investors scared away because of rampant terrorism, bad law and order and energy shortages. After the new government developed a more comprehensive strategy to deal with terrorism and with some neat financial work by Finance Miniser Ishaq Dar bringing the dollar exchange rate below Rs 100 to the dollar, investor confidence and the economy were beginning to look up. The government also went ahead with a 3G auction to increase capital inflows and went to the International Monetary Fund (IMF) to halt the decline in foreign exchange reserves and improve Pakistan’s debt profile. It managed to bring the crippling circular debt problem under some measure of control following which, in the recently ended fiscal year, growth was projected at 4.1 percent and the inflation rate has been declining, from 8.7 percent at the beginning of June 2014 to 7.14 percent at the end of August.

A great deal of work still remains to be done, especially in the lagging industrial sector. The IMF for several reasons is currently withholding the fifth tranche of $ 555.9 million that Pakistan was set to receive under the Extended Fund Facility (EFF) negotiated by the government in 2013. First it says that not enough has been done to withdraw Statutory Regulatory Orders (SROs) that are effectively indirect subsidies to certain industrial sectors, and it said that there has been a substantial increase in the backlog of the Public Sector Development Programme (PSDP). The policy on SROs particularly draws attention because, as many economists argue, it is open to nepotism, creates imbalances in the competitive market and rewards inefficient suppliers with government handouts. The government was also unable to introduce amendments to the SBP Act aimed at strengthening the administrative authority of the central bank, a key part of the IMF’s programme.

However the most important reason for the IMF decision seems to be the current political impasse, since it was ready to release the funds as late as August 5, before the protests in Islamabad started. Political instability was also cited by the SBP as a reason for possible declining growth targets particularly in the industrial sector, which would adversely affect Pakistan’s balance of payments position if exporters are unable to meet their targets because of supply chain difficulties. The SBP cited reduced capital inflows and Foreign Direct Investment (FDI) as a factor for lagging industrial growth, with the political impasse creating considerable doubt in the minds of investors. Pakistan’s growth rate this year, the SBP said, was predicated on agricultural production, which has taken a hit because of recent heavy floods, which have also threatened the supply chain and delivery of perishable food products. These internal factors coupled with the IMF’s delayed decision have put the nascent economic recovery in peril and it seems the SBP therefore decided to err on the side of caution because the risk of inflation spiralling out of control in fiscal year 2014-2015 still remains present after this first quarter review. g

Bilawal set to reconquer Punjab?

“Now is not the time to do politics. I’ll be back next month to do politics,” are the words of Pakistan People’s Party (PPP) patron-in-chief Bilawal Bhutto Zardari, which he expressed in Lahore during his ongoing visit to Punjab. The flood devastation and the current political instability have worked as a wake-up call and forced our political parties’ leaderships to reach out to the public with the intention to allay the profound dissatisfaction and anger that has boiled up over the years as a consequence of the inefficiencies of successive regimes. Bilawal Bhutto Zardari, during this much-needed Punjab tour, is visiting the flood-hit areas to distribute relief goods and also to patch up with the local party workers and leaders, who for long have not seen their party’s co-chairman. With this timely political gesture, young Bilawal has vowed to reconquer Punjab, which used to be the stronghold of the PPP once. Over time the party’s following has shrunk to Sindh alone. There was a time in the 1970 elections that even a lampost, it was said, with a PPP ticket would win the election. The gradual decline in its popularity, especially in Punjab, is a direct consequence of past repression and the change in leadership that with its relatively detached and indifferent attitude has alienated the committed party workers. What gained PPP popularity in the past in the country as a whole and Punjab in particular, was its programme of standing up for the rights of the workers, peasants and the common man. No doubt after the judicial murder of Zulfikar Ali Bhutto and the ensuing repression unleashed by Ziaul Haq on the party leadership and its workers, it was crushed heavily. Subsequently, in the name of pragmatic necessity, it abandoned its earlier pro-people elan, in the process incrementally losing its support base. Despite all this, over the decades it has managed to stay in the political firmament and even been in power, twice under Benazir Bhutto and once after her assassination. However, the constraints of pragmatism led the party inevitably towards accepting the ‘wisdom’ of the times and embracing the neoliberal paradig. Currently, the Punjab political standing of the party is in limbo except in south Punjab, where it still retains a vote bank.

To inspire the common man is the task young Bhutto should set himself. Visiting flood victims is a good gesture that will help him improve the party’s deteriorated image in Punjab. Meanwhile, in an attempt to woo the province, Bilawal Bhutto during his rather feisty speech in Multan, while on a swear-spree to take back everything, vowed to retrieve the entire Kashmir as well. That predictably provoked severe criticism from across the border. If he wants a political revival in Punjab, not only does he need to be balanced in his pronouncementss, he needs to return to the party’s ideological roots and culture, which is worker, peasant and common man centred. *