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Although there are claims of economic stabilization in Pakistan however, the country has still not seen economic growth as a good trade policy will not choose to take the economy in a good direction. Not surprisingly, the result of these policies was that the country’s industry suffered while importers, traders, investors, stock market and real-estate speculators prospered.
The current economic policymaking framework is deeply flawed as well as inadequate, with a transactional approach to economic issues at the Economic Coordination Committee (ECC) , and an exclusive project approval emphasis at the NEC/ Executive Committee of the National Economic Council (ECNEC).
Parliament and authorities are approximately entirely missing in action in terms of debating or giving direction on economic issues. Some remarkable initial progress was made in achieving macroeconomic stability during the first three quarters of 2020.
However; it remained fragile in the absence of long-neglected structural reforms and political instability. As the present trends observed in the economic survey indicate both low growth and fragile stability may remain elusive in the future.
27% slump in foreign direct investment
On Monday, the State Bank of Pakistan (SBP) reported that foreign direct investment (FDI) during the first seven months of the current fiscal year 2020-21 fell by 27 % compared to the same period of last fiscal year.
According to SBP, the foreign direct investment (FDI) during July-Jan FY21 was $1.145 billion against an inflow of $1.577 billion in the same period 2020. The inflow during January was $192.7 million compared to $219 million in the same month of the previous fiscal year. As a result, a 12 % decline was reported.
The reasons for the decline described by the central bank are, the seven-month decline was mostly due to a decline in net foreign direct investment from China and a rise in net outflow to Norway.
Affect in the overall inflow of FDI
During the first seven months of FY21, others from where over $100 million net foreign direct investments were received were Hong Kong and the Netherlands as they invested $122 million and $105 million, respectively.
According to SBP data, the inflows of FDI from the UK (83.8m), the US ($73.5m) and Malta ($60.6m) were also significant during the seven months of FY21.
Although, a drastic change in the inflows from Norway affected the overall inflow of FDI in 2021. The SBP data shows that during the seven-months of the previous fiscal year, the inflow from Norway was $288.5 million, whereas in the seven-months of 2021 a net outflow of $25.8 million was reported instead of any inflow from the Scandinavian country.
Borrowing from the IMF
Pakistan has been borrowing from the International Monetary Fund (IMF) as an import consumption country. Pakistan has had to borrow 14 times from the IMF in the last 31 years. And then the country has also had to agree to IMF’s conditions.
Recently, Pakistan IMF reached an agreement to revive the $6 billion program which was suspended in April 2020 due to the COVID-19 outbreak as well as policy disagreements. The IMF reached a staff-level accord that would pave the way for the release of a $500 million tranche of loans for Pakistan.
The funds were released at a huge cost. Consequently the poor and the unemployed of the country will have to bear the brunt of the inevitable adjustment that the government would need to implement. The continued hikes in petroleum products prices and power tariffs are considered a precursor to the revival of the bailout package.
Pakistan’s trade deficit
Last month, the trade deficit was recorded at 229 million in January. This was the second month that Pakistan faced a trade deficit. According to the report of the State Bank of Pakistan yesterday, the trade deficit in January 2021 is 55% less than in January 2020 and 65% less than in December 2020. The continuous trade deficit is due to imports of food items, industrial raw materials and machinery. The increase is being called.
Inflation remained a major challenge
Adviser to the Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh and other government authorities several times agreed that inflation remained a major challenge for the federal government which was trying to control the prices of commodities, particularly wheat and sugar.
He said the government had to import wheat to counter scarcity across the country but now the stock situation was completely under control as there was no shortage of any grain at this time. The claims of positive development on the economic situation from all sides said Pakistan considered fake as the masses are still under the grape of inflation.
Solid steps and good economic policies needed
Issues of competence aside, political expediency, short-term thinking, inordinately large lags in policymaking leading to a delayed response, combined with coordination failure at different levels have been responsible.
Some stabilization measures of the current government during the first three quarters of 2020 are yielding results. Macro stabilization and success in the external sector are evident from the economic stats.
Although, the biggest problem for the poor is not remittances or current account deficits, inflation and employment, which the PTI promised to control in the 2018 general elections.
The government is facing a number of economic challenges which need solid steps and good economic policies to overcome the trade deficit, inflation and debt.
If the government wants to develop the economy of the country, authorities need to take drastic measures from adopting long-term policies, decreasing its expenditure, keep the interest rates low, and gradually decrease the prices of petroleum products and electricity.
There also needs to be better structure and purposeful practice in the policymaking framework, moving away from a gradually, ad hoc and transactional approach.
