FeaturedNationalVOLUME 18 ISSUE # 11

National economy in throes of a serious crisis

The government has increased petroleum prices by a hefty margin, drawing loud protests from all sections of people. Reportedly, gas and electricity rates are next in line. In the last few days, the prices of all essential items of daily use have gone up by 40 to 70 percent. Transport charges too have been revised upwards.

But this is not the end of the story. The media has reported that the government has prepared two draft ordinances to impose Rs200 billion in new taxes in order to meet International Monetary Fund’s (IMF) demands to resume a stalled loan programme.

The government is also said to be considering withdrawing the power sector subsidy and imposing sales tax on raw materials for the export sector, especially textile industrialists. While PML-N leaders continue to support price hikes, former finance minister Shaukat Tarin has demanded the resignation of finance czar Ishaq Dar for pushing Pakistan to the “brink of default” and causing “immeasurable sufferings” to the masses through his ill-advised economic policies.

Shaukat Tarin also rejected the claims made by Senator Dar about the state of the economy and said that the latter is ruining the manufacturing sector by blocking the import of essential raw materials. According to him, all economic indicators are going downhill. In the last few days, the dollar has risen to Rs 260-270 rupees and the slide continues despite Ishaq Dar’s earlier boast that he will bring the dollar rate to below 200. The central bank reserves had fallen dangerously to $3.7bn as of Jan 20 which is hardly three weeks of import cover. In the meanwhile, there has been a seven per cent decline in exports, 11pc in remittances, and 59pc in foreign direct investment.

Ishaq Dar’s policies are under attack from all quarters, including PML-N members and ex-finance minister Miftah Ismail. On the other hand, Shaukat Tarin said that Ishaq Dar has a “poor understanding of economic policymaking” and claimed that during the 2013-2018 period, the economy paid a heavy price because of the ‘dollar peg’ with exports going down from $ 24.8bn in 2013 to $ 22bn in 2017. According to him,“In 2022, the same experiment by Ishaq Dar resulted in the exports declining by 7pc. This clearly shows that Ishaq Dar has not learned any lessons from past mistakes and is unfit for this job.”

The latest reports show that the economy has nose-dived as the SBP now estimates that GDP growth will slow down to just 2pc in the current year, compared to 6pc under the PTI government. Due to the draconian tax measures and the restrictions on imports, the manufacturing sector output in the first five months posted a -3.6pc contraction, while eminent economist Dr Hafiz Pasha has forecast negative -1pc GDP growth in FY23. He also said that not only the economy will not create job opportunities for 2 million youths entering the workforce every year, but according to various estimates nearly 10 million workers are at risk of being laid off.

To further add to the people’s woes, the government has prepared two draft ordinances for the imposition of Rs100bn in new taxes and a Rs100bn flood levy on imports. At the same time there is going to be an increase in withholding tax rates and regulatory duty on luxury items.

The economy is in dire straits. In the meantime, the IMF has expressed displeasure with the erratic policies of Ishaq Dar since his return to Pakistan. It may be recalled here that soon after assuming charge of the finance ministry in September, Dar — known for propping up the rupee — pursued his agenda to bring down the dollar despite strong opposition from the IMF and senior officials within the government’s team. Initially, some gains were made when the rupee strengthened from 240 to below 220 against the dollar, but it was not sustainable as the reserves were falling, mainly because of a decline in exports.

The Lahore Chamber of Commerce and other trade bodies have rejected the recent hikes in petroleum and other products and asked the government to formulate long-term policies with their consultation for the sustenance of the national economy. A few days ago, a representative delegation of industrialists from across the country held a meeting at the Trade and Development Authority of Pakistan (TDAP) to discuss ways to extricate the economy from the present morass. Businessmen are unanimous in their view that Pakistan’s economy is inherently strong and can be put on the road to recovery by undertaking long delayed structural reforms, including agriculture tax and putting in place an ease of doing business regime to boost production and exports.