ISLAMABAD
The Pakistan Industrial & Traders Associations Front (PIAF) Chairman Faheem ur Rehman Saigol has said that the country’s economy has nosedived partly due to external factors of the Russia-Ukraine war, global recession and the devastating floods but equally relevantly due to some questionable domestic policy decisions, besides widening differential between interbank and open market rupee-dollar parity, which has led to a decline in remittance inflows by enabling the hundi-hawala system to get a meaningful boost after the global lockdown in the aftermath of Covid-19.
PIAF Chairman, in a joint statement along with senior vice chairman Nasrullah Mughal and vice chairman Tahir Manzoor Ch, stressed need for a revisit of some policies including the coordination exercise between the Ministry of Finance and SBP.
He said that no independent economist could support the economic policies that are currently in place.
Take the widening differential between the interbank and open market rupee-dollar parity that has compromised the capacity of the importers of essential items and the repatriation of profits by foreign companies, including the ticket fare sales of foreign airline companies, thereby shriveling the availability of dollars in the economy.
And granted that the Afghan crisis is responsible for dollar outflows from our markets, yet this is not the only reason. In addition this differential in the rate is contracting remittance inflows as overseas Pakistanis are reverting to the hundi/hawala system again, a practice abandoned during the pandemic due to a global lockdown.
The government needs reminding that remittance inflows were 29.4 billion dollars last fiscal year and this large inflow was also due to the fact that the interbank and open market rates did not diverge significantly during the previous tenures.
Thus the current untenable situation is due to a perceived policy of exchange rate manipulation and cannot be attributed entirely to the warnings of impending default or criticism of the handling of the economy.
Faheem ur Rehman Saigol observed that coordinating fiscal and monetary policies may be beneficial yet with inflation attributed to administrative decisions in nearly all recent Monetary Policy Statements and the government unwilling to implement key reforms in the power sector and tax structure the SBP needs to be vigilant in ensuring market-based exchange rate policy and a positive discount rate while the Ministry needs to revisit its tax policy, utility pricing policy and of course continued massive injections into loss-making state-owned entities.
The country has had three de facto finance ministers since 16 April 2021, who massively misjudged their capacity to get the International Monetary Fund to agree to phasing out the harsh upfront conditions that were agreed– a miss-judgment that delayed the success of the mandatory quarterly reviews and thereby delayed the disbursement of the tranches on which rollovers by friendly countries as well as pledged new loans estimated at around 4.2 billion dollars are dependent.
The scheduled ninth review talks have yet to begin and the lacunae include not only the monetary and exchange rate policy in practice today but also the decision to provide exporters electricity and an agricultural package consisting of over a trillion rupees of credit — a highly inflationary policy today, given the output contraction due to the floods and the contractionary policies expected if the Fund review is successful, and raises the possibility of further elite capture of this credit amount based on the lack of collateral with the poor and subsistence farmers.
