Cost of economic stability

Concerns of the business community make more sense when seen in the light of discouraging foreign investment figures

It is heartening to hear — and that too from an authority figure — that Pakistan has achieved the “most crucial milestone” of economic stability, and the country is now “capable of absorbing any financial shocks”. The good news on the health of the economy has been delivered by none other than the SBP Governor, Reza Baqir, during a speech to the business community at FPCCI in Karachi on Friday. According to Baqir, government’s financial management has helped enhance foreign exchange reserves to the extent of creating a buffer for absorbing any internal and external financial shocks — like a fall in revenue collection or volatility in the rupee-dollar parity, at the local front; and an increase in global oil prices or any unexpected external situation as the Kashmir issue these days.

There is no way to disagree with the central bank chief that the government’s policy of structural reforms, being carried out under the IMF loan programme, has started achieving what is on target — the economic stability. A clear indication in the context is the current account deficit which has fallen to $13.6 billion as of June 30, 2019 — from $18 billion at the time Imran Khan took over as Prime Minister in August 2018 — and is on track to go down further. However, there is little room either to disagree with the representatives of the business community Baqir spoke to at the FPCCI event that whatever economic stability has been achieved is a result of the currency devaluation and the increase in the key interest rate — something that has affected private-sector investment, and has contributed to the fall in the economic growth rate.

The concern of the business community about the cost of economic stability is quite genuine and makes even more sense when seen in the light of the discouraging figures related to exports and foreign direct investment. All that shows is that an export-led and investment-laden economy is still a challenge.

Published in The Express Tribune, September 1^st, 2019.

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