On Wednesday, Finance Minister Shaukat Tarin expressed confidence in the government’s recent relief plan and clarified that the government believed that the International Monetary Fund (IMF) would also give the go ahead on these measures. The two key issues of concern relate to the fuel adjustment prices and the amnesty scheme announced for the industrial sector.
The government’s argument here is that in the case of the price stability mechanism, there will be no need to readjust the budget deficit figures; money to pay for this will be found through increased dividends in oil and gas companies, a reduction in the Public Sector Development Programme (PSDP), additional FBR tax revenue and through adjustments to the Ehsaas and Covid relief allocations. While this is indeed a creative use of state funds—although cutting the already beleaguered PSDP will only do more harm than good in the long run—the government is not accounting for the medium- to long-term in its bid to stave off the current crisis.
Given the volatile nature of international markets, attempting to fix prices on one of the most unpredictable commodities is perhaps taking on too much burden. The supply chain is already stressed, and as time passes and the price action becomes choppy, the government might find it a little harder to honour this promise. We do not want another fuel crisis at this juncture, when a gas crisis is already wreaking havoc and global demand and supply for oil only raise questions about how orders will be met going forward.
As far as the amnesty is concerned, Pakistan’s consistent inability to move itself out of the FATF grey list and the lack of checks on wealth and income provided through amnesty might be a glaring concern for the IMF in its next review. The government is banking its hopes on this move generating investment in industry, but beyond some moving of parked wealth the state needs to do more to provide incentives for production and export. Ease of doing business (or lack thereof) is a big issue that the government should be working on instead of offering a no-questions asked policy.
While the government looks to be optimistic in the year going forward, there is reason to be sceptical still. Our reliance on imports and the inability to facilitate key production streams—the wheat crop is just one example—could end up costing us economic growth, and with the high levels of inflation, this stagnation of economic activity could lead to stagflation. Harder times might still lie ahead on the economic horizon.
The government’s argument here is that in the case of the price stability mechanism, there will be no need to readjust the budget deficit figures; money to pay for this will be found through increased dividends in oil and gas companies, a reduction in the Public Sector Development Programme (PSDP), additional FBR tax revenue and through adjustments to the Ehsaas and Covid relief allocations. While this is indeed a creative use of state funds—although cutting the already beleaguered PSDP will only do more harm than good in the long run—the government is not accounting for the medium- to long-term in its bid to stave off the current crisis.
Given the volatile nature of international markets, attempting to fix prices on one of the most unpredictable commodities is perhaps taking on too much burden. The supply chain is already stressed, and as time passes and the price action becomes choppy, the government might find it a little harder to honour this promise. We do not want another fuel crisis at this juncture, when a gas crisis is already wreaking havoc and global demand and supply for oil only raise questions about how orders will be met going forward.
As far as the amnesty is concerned, Pakistan’s consistent inability to move itself out of the FATF grey list and the lack of checks on wealth and income provided through amnesty might be a glaring concern for the IMF in its next review. The government is banking its hopes on this move generating investment in industry, but beyond some moving of parked wealth the state needs to do more to provide incentives for production and export. Ease of doing business (or lack thereof) is a big issue that the government should be working on instead of offering a no-questions asked policy.
While the government looks to be optimistic in the year going forward, there is reason to be sceptical still. Our reliance on imports and the inability to facilitate key production streams—the wheat crop is just one example—could end up costing us economic growth, and with the high levels of inflation, this stagnation of economic activity could lead to stagflation. Harder times might still lie ahead on the economic horizon.
