Hence the optimism
It takes an unusually submissive central bank to pin hopes on economic growth while, among other things, expressing concerns about ‘low credit off-take by the private sector, stagnant export earnings and poor foreign direct investments’. If it were within the state bank’s jurisdiction to comment on tax collection, it would have struggled to maintain its optimism. But it’s not the bank’s business to shower unwarranted praise on the economy either, especially when all revenue generating avenues – investment, export, tax – are compromised. Granted, international rating agencies have been more generous than usual of late, even if they are more concerned with capital markets than the real economy, and the stock exchange has been on a roll, but does that suffice to prop up growth?
Perhaps some of those ‘agencies’ are banking on the same indicators as the state bank. Interest rate is lowest in living memory. And there are a host of mega infrastructure projects in the pipeline – from motorways to power generation – which will soon begin generating employment across the country. But the rate was cut some months ago. Yet the bank thinks investment “which has been a key concern for economic growth in recent years, is likely to benefit from monetary easing…”
The bank has toggled the rate up and down a number of times over the last few years, yet the private sector has remained crowded out. The reason is the government’s addiction to borrowing, even to fund its day-to-day activities. Till such unforgivable excesses are checked, no manner of gloss can cover an inefficient, counter-productive money market, where central bank easing is routinely lost to government inefficiency. Energy plants, too, are unlikely to impact production shortfall at all, especially since the main problem revolves with the circular debt; the inability to make consumers, especially big guns, pay despite having adequate production capability. With questionable earning capacity and a visibly skewed money market, it is difficult to understand the central bank’s vote of confidence. SBP is advised to exercise greater independence and protest when its policy mechanism is made ineffective by a government it goes out of the way to appreciate.
