Chairman of Pakistan Industrial and Traders Associations Front (PIAF) Faheem ur Rehman Saigol has expressed concern over the country’s deteriorating economic situation and emphasized the need for a revisit of some policies, including the coordination between the Ministry of Finance and State Bank of Pakistan (SBP), reports WealthPK. In a joint statement with Senior Vice Chairman Nasrullah Mughal and Vice Chairman Tahir Manzoor Chaudhry, Saigol said Pakistan’s economy had nosedived partly due to the Ukraine crisis, global recession and the devastating floods, but a factor equally responsible for this situation was the widening interbank and open market rupee-dollar disparity that enabled the hundi-hawala system and thus led to a decline in the flow of remittances.

“No independent economist can support the current economic policies. The widening differential between the interbank and open market rupee-dollar parity has compromised the capacity of importers of essential items and repatriation of profits by the foreign companies, including the ticket fare sales of foreign airline companies, thereby shrivelling the availability of dollars. And granted that the Afghan crisis is responsible for dollar outflows from our markets, yet this is not the only reason,’’ he said.

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, he added. “The government needs reminding that remittance inflows were USD29.4 billion 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,’’ he continued.

“The country has had three de facto finance ministers since 16 April 2021, who massively misjudged their capacity to get the IMF 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 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 with 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.

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.

Credit : Independent News Pakistan-WealthPk