- SBP tightens screws
Sure, the state bank was expected to increase the discount rate, and some investment houses even factored in the complete one percent rise, yet the decision has still unleashed inflationary concerns, particularly among the working middle class already stung by sudden rise in gas and electricity prices. Coming on top of the recent admission that growth in the ongoing fiscal would be compromised by at least one percent, this move also hammers in the realisation that the new government will be straddled with low growth and high inflation – text book stagflation – in its first year of power.
That, again, is hardly a surprise. The main problems have been the same for more than two-three years. The deficit is hemorrhaging. The currency is in free fall, which delivers the kiss of death to debt servicing. And let’s not forget, of course, that debt stands close to the hundred-billion-dollar mark. And no manner of lobbying or good luck has been able to breathe any sort of life into exports. It’s even more unbelievable, of course, that no government so far has issued any sort of a policy subscription to this existential crisis. And this is, very much, the country’s gravest crisis at the moment. If the reserves situation is not addressed, Pakistan will default.
There is more than a grain of truth in PTI’s argument that there was precious little it could do upon finding the treasury not just empty, but deeply debt-stressed. But it must be strongly faulted for dragging its feet so long. Asad Omar calmed investor nerves in the market early on by promising a quick verdict on the bailout. Yet more than a month has passed and the government has, effectively, only kicked the can further down the road. The resulting dent to investor confidence is easily readable from the blood on the market floor. As a first step, then, the government must immediately provide a roadmap for the way forward. Now that the IMF team is about to wrap up its visit, a little clarity might not be too far away.
