Allah Almighty helped Pakistan all through Coronavirus Pandemic and government’s strategy of smart lock down proved successful in limiting the outbreak. Business Confidence Index (BCI) and Index for Employment which remained in stress during this period has shown some positive signs from July which is good news for economy and employment opportunities. In the meanwhile, position of Trade Account Deficit has improved where exports increased in first month of current fiscal year i.e. 1MFY21 as compared to imports, stated by Ministry of Commerce and issued by Pakistan Bureau of Statistics (PBS) separately, though presented figures of both offices are not matched and is a sign of concern because unauthenticated figures lead to make a wrong decision which we have seen a major problem remained in recent past. Price hike of Wheat and Sugar is not only related to hoarding mafias but the decision of sitting government for export of commodities based on available unreliable stock reports as well. However, government is not to be blamed for this mess solely as it depends on data compiled and attested by government officers of relevant departments where corruption and out of merit recruitments has rotten the overall system of check and balances. Old structure of Civil Services to be replaced with open merit recruitments of specialists of relevant fields so that better decision to be made with swift execution of the same.
Increase in prices of commodities and inability of Competition Commission of Pakistan (CCP) curbing this trend encouraged mafias to deal other commodities in same manner resulting inflation to increase in 1MFY21. As discount rates are corelated with inflation figures it can witness a rising trend in return. Due to supply and demand of commodities, reduced purchasing power, decrease in oil prices because of global shut down and government relief packages for limiting economic impact of COVID19 discount rate went down by 625 BPS since March i.e. from 13.25% to 7%. Though government allowed restrictive activities of certain sectors with SOPs during lock down yet Large-Scale Manufacturers (LSMs) and related Small business (SMEs) showed negative growth which now requires a borrowing on reduced mark ups for working capital requirements and bridging stressed Cash Flows where receivables are stuck as well. Therefore, further reduction in discount rate is important and it was very much expected till the country witnessed sudden increase in Petroleum prices and a surge in prices of wheat, sugar and other commodities. According to PBS Consumer Price Index (CPI) increased from 8.6% in June 2020 to 9.3% in July 2020 on Year on Year (YoY) basis. This means the ideal situation of correlation between discount rate and inflation is already disturbed where inflation figure remains lower than the discount rate. International Monetary Fund (IMF) targets compelling government to increase electricity tariff by 30% and if this happens inflation will further surge. Devaluation of Pak Rupee is adding fuel to the fire of cost push inflation though due to government continuous efforts Current Account Deficit (CAD) considerably reduced from $13.4 Billion Dollars (FY19) to $2.96 Billion Dollars in FY20 which could have worst this situation if CAD would have been out of control. It is pertinent to mention here that inward home and workers remittances will witness decline in FY21 by 26.8% according to Asian Development Bank in worst case scenario where global remittances will witness a sharp decrease by $ 108.6 Billion Dollars. Further to note that Pakistan received a record inflow of $ 23.121 Billion Dollars in FY20 which helped in reducing CAD as well.
The ideal situation of correlation between discount rate and inflation is already disturbed where inflation figure remains lower than the discount rate
Government needs to explore other ways of revenues rather pressurizing already documented economy and tax payers. Promoting agriculture, manufacturing of import substitutions, new products for export and tax reforms are now very important for sustainable growth within the available system. Global lock down due Coronavirus Pandemic has increased the importance of availability of foods within a country. Therefore, agriculture is gaining importance globally. Pakistan has vast agricultural land and now it’s time to focus on this sector very particularly. It will not only provide food supplies for local consumption and export but raw material for Pakistan’s largest export sector i.e. Textiles which accounts for 55% of total exports though under pressure after global pandemic yet situation is improving globally where Pakistan has GSP plus status from Europe and more textile related goods have been added to China Pakistan free Trade Agreement second. Recently it has been observed that farmers were reluctant to sell wheat to government on support price of Rs.1350 per M. Ton where market price was around Rs.1800 and if government decides to import it will cost around Rs.2200.
The writer is an Economist, Columnist and a Chartered Banker UK. He can be found at twitter: syedaliimran75