SBP annual report

Gains and challenges

One expects the SBP to be an independent institution that reviews the economy objectively. The present report underlines positive factors but does not fully underscore major problems that still remain. The economy has stabilised but much of the improvement has been gained through short-term measures. Unless key structural reforms are pursued the situation could reverse.

Foreign exchange reserves have risen to cover seven months of imports. The increase however comes on the back of money the government has raised from global investors or borrowed from IFIs. Meanwhile heavy borrowing by the government continues to deny the private sector adequate volumes of credit at a time when exports are declining.

One can differ with some of remedies given in the report. It is maintained that savings cannot be increased unless the private sector comes up with attractive saving schemes covering pensions, provident fund, gratuity and old age benefit. It makes no mention however of major factors such as the power to save and the will to save which could be influenced by giving a positive real rate of return to savers, improving security situation and investment climate in the country and reducing population growth rate. Again, while dealing with the issue of a consistent decline in exports, following the footsteps of the Finance Minister the SBP neglects to mention that competitiveness of Pakistani exports can be ensured by devaluing the rupee also.

The tax to GDP ratio still remains low. Political exigencies stand in the way of extending the tax net to all taxable incomes. The trading community, considered PML-N’s constituency, remains largely out of the net – so do hundreds of people living in upscale neigbourhoods owning luxury cars and making several foreign trips abroad every year. While one may agree that terrorist acts were a major factor in discouraging the FDIs, other factors like quality of governance and ease of doing business cannot be ignored. Again white elephants in the state sector which continue to cause massive hemorrhage to the economy are yet to be disposed off.