- Rhetoric versus reality
The PTI’s first year in office has been most criticised in the light of its various economic policies– the hits and misses– aimed at stabilisation. What it inherited from the outgoing PML-N government was a mess that required some immediate firefighting with heavy borrowing to reduce the current account deficit, sharp depreciation of the rupee against the dollar and hiking the discount rate as part of monetary policy tightening. According to SBP governor Reza Baqir ‘the most crucial milestone of economic stability’ has been achieved as the increase in foreign exchange reserves has created a ‘buffer for absorbing any external financial shocks’. A nominal increase in exports and drop in imports has significantly reduced the current account deficit with deferred oil payments also providing support. Yet, debt servicing obligations will keep pressure on the reserves figure and with new loans set to be taken in the coming months that pressure will only increase. The IMF’s hand on our head means a default-like situation is unlikely but sharp spikes in the rupee-dollar parity cannot be ruled out so soon. Another pressure that will remain in the long-term unless some proactive measures aren’t taken is the budget deficit that has soared to Rs3.45 trillion, the highest ever in the past eight years. The FBR has set an unrealistic revenue target of Rs5.5 trillion in this financial year meaning it has to raise Rs1.07 trillion each quarter and has already missed the August target by Rs97 billion. It is unlikely therefore to meet the annual target. On the expenditure front no amount of austerity will have any meaningful impact on the deficit unless defence and debt– the two largest heads– are looked at and reduced.
It is good that the Prime Minister meets his economic team on a weekly basis for progress reports, but as long as the feedback is the same as the rhetoric served to the public and not balanced with a touch of reality it will be difficult to identify and solve real structural problems in time. This is what happened with the IMF negotiations that Asad Umar was heading and miserably failed at delivering– the deal finalised by Hafeez Sheikh is hardly what the former Finance Minister had promised his boss and the country.
