KARACHI, Jan 15: A senior economist and a former federal minister Dr Hafiz Pasha has indicated the possibility of further rise in State Bank of Pakistan’s discount rate in coming days as core inflation is showing no signs of let up and there is yet no end of impact of hangover of unprecedented monetary expansion in the previous year.
“In 1999-2002 programme with IMF, the discount rate was raised exceptionally high when inflation was in single digit,’’ Dr Pasha recalled in his presentation of a mid-year review of Pakistan’s economy on Thursday organised by the Management Association of Pakistan (MAP). Mirza Ikhtiar Baig, federal government’s adviser on textiles, was the other speaker.
Till recently an assistant secretary general of UNDP, Dr Pasha is now associated with a renowned national institution of social sciences in Lahore. He also headed a panel of more than a dozen top economists to prepare a report on Pakistan’s stabilisation and growth, which apparently has been set aside by the economic management team of the government.
In many guarded words he did not rule out Pakistani rupee coming under more pressures in coming weeks as oil transactions will have to be market- based as per agreement with the IMF, though he evaded a question from a participant, who asked where he sees the value of Pakistani rupee parity with dollar.
In his ‘cautious assessment’ of national economy and estimation of prospects in next six months from January to June 2009 he declared that much will depend on the political will of the government to comply with the conditions of the recently concluded stabilisation programme with IMF.
“More than five million people will be pushed down below poverty line and more than 1.5 million will be rendered unemployed,’’ he declared. He did not conceal his skepticism on government’s ability to collect the revised tax target of Rs1,326 billion.
Industry is showing a negative growth. He expressed doubts if the government would be able to achieve 13.5 per cent tax-to-GDP ratio as demanded by the IMF. He wondered as to why Pakistan’s negotiators did not share their limitations in revenue collection with the IMF.
His main worry was expansion in capital account as current expenditure budget is on rise because of the situation on national borders. Nonetheless, he endorsed government’s adviser Shaukat Tarin’s claim made recently that the government was on track with the IMF roadmap in first half of the current fiscal year.
“This achievement is without any structural reforms in our economy,’’ he declared while pointing out that fiscal deficit control is being achieved by a massive cut in the development programme. Hardly 8 per cent of allocated development funds were released so far.
Mainly because of falling international prices on oil and commodities, the import bill also started tapering off and trade imbalance gradually shrank. While fiscal deficit and current account imbalance are gradually becoming manageable the current capital account shows disturbing signs. He appreciated the government’s efforts in curbing borrowing from the banking sector.
Dr Pasha expressed the view that unless basic structural changes are not brought about in the national economy it will remain vulnerable to external and domestic shocks.
He quoted some experts, who foresee rise again in international oil prices in the years 2010 and 2011 when it may even touch $200 a barrel. He quoted international economists, who predict current recession becoming deeper in the year and may cast its shadow on economies of the developing countries.
Dr Pasha strongly urged the government to honour its commitment of giving Rs950 per 40 kilogram of wheat to the grower even though it may have to provide substantial amount of subsidy as international wheat prices may come down. Food security needs to be given top priority in future planning.
Infrastructure development remained under invested in Pakistan for last several decades for which the country is paying a heavy price.
On IMF he said for the first time the fund has observed that the poverty alleviation is not getting enough attention in Pakistan and has suggested more funds for this purpose.
Earlier a business leader and textile adviser to the government Ikhtiar Baig spoke of the problems being faced by trade and industry particularly related to high interest rates, rising utility tariffs and other issues.