Finance Minister Asad Omer after much delay admitted the likelihood of further depreciation in the value of rupee against the US dollar and other major currencies and slim chances of foreign direct investment if agreement is not made with the International Monetary Fund (IMF) for a bail out package. Majority of independent economists had advised the PTI government over and over last year to avail the loan facility of this global lending agency to get fiscal space to meet Pakistan’s obligations of financing foreign trade deficit and foreign loan payments. But the government remained indecisive even when staff level talks were held with the IMF in Islamabad.
The Prime Minister met the IMF Managing Director Christine Lagarde at the sideline of World Economic Forum in Dubai in November to discuss the loan programme. But afterwards state of indecision prevailed. Now the finance minister has cautioned that inflation rate will shoot up further if loan agreement with IMF is further delayed. Why this realisation was not dawned upon him when the renowned economists were emphasising for IMF programme and when foreign exchange reserves were up after the inflow of bilateral assistance from friendly countries. Amazingly, government has shown displeasure over the assessment Pakistan bureau of Statistics depicting revealing that inflation rate has touched all time high rate of 9.41 percent. In 2014 it reached to 9.2 percent but declined in the succeeding years. The inflation rate galloped because of frequent increases in the electricity and gas tariffs and prices of petroleum products.
The draw down of foreign exchange reserves due foreign debt servicing and balance of payment obligations made rupee weak and it is fast losing its value. The rate of exchange dipped to Rs. 141 in the inter-bank market and to Rs. 143 in open market. Exports are steadily increasing and imports deceasing but even then local currency is not gaining strength. This time the IMF programme will be front loaded and harsh conditions shall be implemented before actual disbursement of loans. The tough conditions include free float of exchange rate, raising the interest rate to 12.5 percent, increase the tariffs of energy inputs and expanding. Process of implementation of theses conditions is on except taxing the affluent classes by imposing income tax and wealth tax on the people who are still out of the tax net. Imposition of agriculture income tax, brokers’ tax and professional tax on lawyers, specialist doctors and accountancy consultants seems to be touching live electric wire. As a futile exercise another tax amnesty scheme for domestic and offshore assets is on cards. Government is still reluctant to take on board the trade bodies for the documentation of small trade to persuade the traders for payment of tax on their income.
The federal government intended to launch an economic diplomacy to boost exports of primary commodities and finished goods but the envoys conference held last year turned out an exercise of assembled, discussed and dispersed. The commercial councilors and trade minister did not budge an inch to explore new markets and enhance the quantum of trade to existing markets particularly the ones where the Generalized Scheme of Preference Plus facility is still available for Pakistani products. Without tapping the full potential of exports rupee will continue to lose its value against global currencies, current account deficit will be swelling and burden of foreign debt will mount further.
