an economy unable to reach its production possibility frontier will always remain vulnerable to exogenous shocks, as in the case of Pakistan. It would have been a different story if the last two-to-three years had seen some sort of visible improvement in handling deficits and improving growth. If we had produced, exported and grown more, we would have had a more stable support base, restricting damage from external shocks our economic and political managers have no control over.
In the present circumstances, among Pakistan’s chief worries is rising energy and input cost, the demand-supply dynamics of which play out on a stage and involve actors far removed from Islamabad’s sphere of influence. With our deficits in uncomfortable zones, additional price pressure due to increasing inflation, predominantly higher energy and input costs, is putting unsustainable pressure on the country’s reserve situation. Therefore, even as relevant quarters and analysts calculate a few month elbow room for reserves, their value diminishes every time international pressures bid up oil.
Things looked up in the immediate aftermath of the 18th amendment, which transferred increased power and responsibility to provincial governments. Yet with no proper revenue generation framework, and unable to get help from a largely defunct FBR, they have been unable to make any meaningful contribution so far. On the other hand, the federal machinery has not been able to introduce any form of value addition in the present export basket. This means that almost all traditional means of generating national revenue are compromised. That is why we rely on international trends to facilitate our economic engine. We are always in need of improved remittances to defend deficits. We are always praying for international events that push down the price of oil so our own economic managers can breathe easy. And of course, we are always on the lookout of bailout and donor assistance. Sadly, despite the obvious persistence of such trends, we have not moved in manner that the situation merits. It bears noting that persistent growth problems require solvency in credit markets to stimulate the only indigenous option to revive GDP. When the external situation exerts unbearable pressure, economies look inward, prompting private sector expansion which in turn attracts offshore investment. In this case, banks facilitate private sector investment, in some cases ably guided by the official machinery, in a way that the centre does not interfere in market mechanism, only facilitates it.
This is where the Pakistani banking sector needs to step up to the plate. For some years now, a proactive lending regime, one that incorporates targeted needs of the time, has been conspicuous by its absence. Whatever little scope the private sector has had has been compromised by heavy government borrowing. This equation requires urgent balancing. The last couple of years of private sector crowding out have left a vast investment field yet to be exploited. Ironically, the laxity of the past might even turn into an attractive opportunity for the present. If properly handled, private sector investment can create jobs, improve infrastructure, create employment and, most importantly, engineer second round market multiplier, with gains for all.
We have now come to the point of no return. Both government and autonomous organs must finalise an action plan that will stimulate employment and growth. That means fine tuning both fiscal and monetary policies. Once the finance ministry initiates immaculately targeted fiscal expansion, and the central bank makes credit available to private investors, we may even see a domino effect strong enough to lure bulky foreign investors.
Our problems are not existential, but their handling has made them acute. We have the necessary inputs, its just a little toggling of official policy that is required. The recent stock market optimism is an adequate indicator of productive potential across the economy. All that is needed is effective program management.
The writer is Chief Manager SME bank
and has been a leading banker in the
industry for more than 30 years