Fitch credit rating agency has place Pakistan at B-ve although with stable apparent outlook of its economy. The report exposes the hitherto not addressed structural weaknesses of national economy, including large fiscal deficit, unsustainable public debt-GDP ratio and mounting foreign debt repayment liabilities against vulnerable position foreign exchange reserves. However, Fitch report does state that external finances appear resilient to shocks due to appropriate policy actions of the government and continuing financial assistance from bilateral and multilateral donor sources. The rating agency also appreciates that application of monetary tools for the revival of economy and projects 1.2 percent GDP growth in the current fiscal year. A week ago Moody’s Investors Services had upgraded Pakistan’s rating to B+3 stable. At present the sources of external financing resilience are surge and home remittances and soft loans from multilateral donor agencies and credit facilities on a relatively lower rate of interest. The government had found it difficult to make the economic environment favourable enough to attract foreign direct investment in productive assets and relied on the monetary tool alone of interest rate hike to fight the galloping inflation, which attracted portfolio investment in the shape of hot and which flew away when coronavirus pandemic broke out and interest rate was cut by 625 basis points. Fiscal and reforms in the power sectors were not done, There are no bold indication for making the taxes and duties regime favourable and new tariff regime of electricity will materialise within two years’ time. Likewise, there is no bold measures to reign in the influential willful defaulters against whom Rs.850 billion are outstanding. The government is not providing the much needed political and administrative support to the bankrupt power distribution companies for power sector receivables. Likewise, the current ruling political leadership like the previous one has not yet prioritized the upgradation of ragtag transmission and distribution system, for which Asian Development Bank had approved a concessionary loan of $4.50 billion in 2016, although commitment charges of 0.5 percent are being paid since had been sanctioned. The Mitiari-Lahore high voltage transmission line is being under construction, courtesy of CPEC. For the past two days all categories of consumers, across Khyber Pukhtunkhwa have suffered the agony of frequent power breakdowns and load management of more than twelve hours, which have also impacted production activities in the industries and business turnovers.
The inflated power tariff is taking heavy toll on the manufacturing sector and pushed the export industries to the brink of forced shut down, particularly the SMEs, which contribute to exports in a big way. In the last four months of previous fiscal year government had reduced the electricity tariff to 7.5 cents equal to Rs.11.50 per unit. The facility was not extended in the current year and per unit tariff has gone up to Rs.24. Power Division is doing delaying tactics for extending the period of regionally competitive power tariff in the current fiscal year. If this incentive is given, SMEs alone will be able to increase exports by $3 billion.
It is quite flabbergasted that the top notch officials of the ministries of Industries, Production, Commerce and Finance are not taking seriously the directives of the Prime Minster Imran Khan to make the ease of doing business favorable for boosting exports. The ministries of Industries and Production have miserably failed to put in place long term sustainable industrial policy to facilitate the private sector for the induction of latest generation technologies for achieving economies of scales. A final deadline of 30th September, 2019 was set by the PM himself, for producing the final draft of the industrial policy. Still, a deaf ear approach is executed. The commerce ministry has always been reluctant to bring out a long term composite trade policy for uplifting exports. The sagging exports are everyday reflected in the weakening of rupee against dollar and other major global currencies. Lack of spine in the ruling political leadership has sent the loud trumpeted reforms in the FBR, particularly in the Inland Revenue Service has been shelved; consequently, the tax collection of direct taxes is always missed. Moreover, the finance ministry is always fond of slapping the highly regressive indirect taxes on the manufacturing sector, which wipes out the whatever; the comparative advantage which is still left of our industrial products in the international market. It is high time that long term industrial and agricultural policies are started out and their implementation is ensured.
