'Govt needs to be cautiously optimistic'
The International Monetary Fund (IMF) on Tuesday advised Pakistan to stay on course and show some patience amid growing demand from the private sector to open up the economy to create jobs and reduce unemployment.
Pakistan "needs to stay on course, remain committed to programme objectives and at the same time needs to have a little bit of patience," remarked Mahir Binici, IMF Resident Representative in Pakistan. Binici was speaking during the "Dialogue on Economy", organised by the Pakistan Business Council (PBC).
The resident representative, who recently took over, said that Pakistan had to be optimistic cautiously and had patience to stay on course in order to deliver on reforms so that people could benefit from that.
The government has been facing increasing pressure from within and the business community to further ease monetary policy, open imports and let the economy grow. However, many voices are opposing such demands as the country is still passing through a phase of relative stability and its economic fundamentals are weak.
Economic growth in the first quarter stood at only 0.92%, which was far lower than the optimism created by the government.
"There is no automatic switch from stability to growth and we need to change the DNA of the economy to avoid any new balance of payments crisis after any new spurt of economic growth," said Finance Minister Muhammad Aurangzeb at another session during the dialogue.
He did not promise any relief for the salaried class but admitted that "salaried persons were paying taxes disproportionate to their incomes". He appeared helpless in reducing tax rates, saying it was not possible until other sectors started paying their due share in taxes.
Mahir Binici said that Pakistan's economic recovery had been in place and "we expect that the positive growth momentum will continue in this and the next fiscal year." Inflation has receded and a significant progress has been the improvement in the external sector. The SBP is building external buffers, Binici added.
The finance minister anticipated a further cut in interest rate following the easing of inflation in January. He said that the Karachi Inter-bank Offered Rate (Kibor) was already trading below the 12% policy rate.
The foreign exchange reserves of $13 billion by June this year would provide comfort to international credit rating agencies to improve Pakistan's rating to B, he projected.
Mahir Binici said that unlike the typical IMF programmes that started with a crisis, the crisis situation and the stabilisation were already partially addressed during the last nine-month programme.
The objective of the new programme was to maintain and cement economic stability with structural reforms, said the resident representative, adding that focus should be on reform agenda rather than achieving stability without adjustment. The objective is to have stronger, sustainable and more inclusive growth.
Sustainable growth could be achieved through reducing distortions, ending state interventions and removing a variety of concessions, which would "enable us to have more resilient growth," said the IMF local head.
Speaking at another session, Pakistan's former ambassador to the United States, United Kingdom and United Nations Dr Maleeha Lodhi said that without economic strength, Pakistan could not play a major role on the global front.
Pakistan had to navigate its foreign policy challenges in a global geopolitical environment that was marked by five important features – growing multipolarity but weakening multilateralism, US-China competition, rising East-West tensions, increasing importance of middle powers and advanced technology, she added.
She said that Pakistan could not be a middle power until it had economic strength and made technological advancements.
There were six priority areas for Pakistan's foreign policy in the months and years ahead, said Lodhi. They are relations with China and the US, while avoiding getting into the crosshairs of their confrontation, although that might be easier said than done, dealing with an increasingly testy relationship with Afghanistan, managing the adversarial relationship with India, balancing ties between Saudi Arabia and Iran, and keeping relations with the EU on a positive track.
She said that China remained Pakistan's top foreign policy priority. While relations remain strong, a number of problems need to be resolved.
"China's three main concerns are lack of political stability in Pakistan, security of Chinese personnel working here and the public manner in which requests are made for loan rollovers and debt relief as this has implications for lending to other countries," she said.
Regarding the US, Maleeha Lodhi said that the big unknown was how relations with Trump's America would shape up especially as Pakistan's geopolitical importance had diminished for Washington after its exit from Afghanistan.
She said that America's top strategic priority was to contain China but Pakistan could not be part of any anti-China coalition. Another limiting factor is Washington's growing strategic and economic relationship with India, in a strategy to project Delhi as a counterweight to Beijing.
"The challenge is to find space for Pak-US relationship between these two strategic realities. This will not be easy as Pakistan doesn't figure in Trump's foreign policy priorities," she added.
With India, resumption of formal dialogue is not in sight but a backchannel is needed to manage tensions. At the moment, there is no framework for crisis management, said the former ambassador.