Policymakers divided: Advisers ask govt to adopt growth-propelling policies

Say investments should shift from real estate, stock markets to farms and factories.

ISLAMABAD: The country’s economic policymakers are divided over what direction the monetary and fiscal policies should take, as most of them want the government to adopt such kind of policies that propel economic growth to higher levels, putting the economic czar in a tight spot.

The advisers have asked the government to frame policies in a manner that take investments to farms and factories from real estate and stock markets.

Members of the Monetary and Fiscal Policies Coordination Board – a statutory body tasked with setting the direction of economic policies – also prodded the Ministry of Finance into coming out of its economic stabilisation mode, said officials after the meeting.

Finance Minister Ishaq Dar chaired the meeting that was also attended by officials of the State Bank of Pakistan and Minister of Planning, Development and Reform Ahsan Iqbal.

It came just three weeks before the next budget that is expected to be announced in the first week of June.

According to the officials, a majority of the board members including the planning minister urged the finance minister that he should now start thinking about growth-oriented policies. Growth stemmed from consumption, therefore, the economic czar needed to think about export-led growth, they said.

They also pointed out that investment in real estate and a booming stock market did not carry any value for the economy and money should be injected into the real economic sectors – manufacturing and agriculture.

Owing to the tight economic policies, growth in the current fiscal year is expected to remain around 4% with the International Monetary Fund (IMF) putting it at 4.1%.

For the next fiscal year, the IMF has estimated economic growth at 4.5%, far below the required rate of 7-8% to create jobs for the new entrants.

No room for flexibility

Sticking to the tradition, Dar asked the Ministry of Commerce to prepare time-bound action plans to enhance exports. The minister remained sensitive to the exchange rate, which had become a major obstacle to exports.

Despite agreeing to the need of expansionary monetary and fiscal policies, the officials said, Dar did not have the luxury to be very flexible. The fiscal policy, to a large extent, has been pre-determined by the IMF and looks to be a tight one.

The IMF has set the budget deficit target at 4.3% of gross domestic product, leaving no chance for any major development spending to propel the growth, said the officials.

Furthermore, the Federal Board of Revenue has been assigned the task to collect Rs3.1 trillion in taxes in the new fiscal year, which will increase the burden on the industry, which is paying most of the taxes.

According to the officials, a slowdown in the pace of inflation has created room for a further cut in the key discount rate, which currently stands at 8%, a 13-year low. There was room for at least 0.5-1% reduction in the upcoming monetary policy announcement.

The board members advised the finance ministry to change its borrowing mix, as despite a significant cut in the discount rate, there was no credit left for the private sector.

As of April 24, there was a negative growth in private sector credit offtake that stood at only Rs195.2 billion against Rs309.6 billion in the same period of previous year.

The finance ministry was also advised to use a mix of external and domestic non-bank borrowings to leave the banking sector funds for the private sector.

Published in The Express Tribune, May 16^th, 2015.

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