- Another rate hike
With its third interest rate increase since January – by 100 points on Saturday to 7.5pc – the central bank is clearly ringing inflation alarm bells, even if it might already be too late in getting off the mark. Projected growth for FY19 is now 5.5pc, down from the earlier projection of 6.2pc. And, far more ominously, the ‘revised estimate’ of the fiscal deficit (May) is not 5.5pc, but a staggering 6.8pc. That explains the recent upward trend at the Bank, of course, in sharp contrast to the rhetoric that came out of the finance ministry and central bank alike, despite the latter’s apparent sovereignty, during the PML-N government.
No more do we hear the ‘all is well, actually very well’ mantra of both Dar and Miftah. Now, with the deficit so deep in red, and no immediate bailout around the corner, whichever party forms the next government could well struggle with the prospect of default in its first few months in power. The finance ministry did not deny media reports that it is clueless about handling some $12-13b in loan payments due next year. It will need far more just to function, of course, since we are one of the few countries to run almost entirely on borrowed money. And there simply seems no way on earth that we can manage our imports or add value and stimulate our exports. Everything, then, must depend on loans, especially in the immediate term.
To add insult to injury, it’s not just the real economy that is collapsing, but the external environment is turning as well. Oil, which remained subdued throughout the last electoral cycle, for reasons completely detached from Pakistan, has been on its way up again for a while now. And with Pakistan’s relations with Uncle Sam not the warmest in recent memory, international donors are likely to put up stiff austerity conditions if any will commit to lend at all. Things are grim on the economic front, to put it mildly.
