Withdrawal of power sector subsidy to hit exports: FPCCI

FPCCI President Irfan Iqbal Sheikh told media here Saturday that exports had for the last six months been decreasing i.e. August 2022 – February 2023 as per the data released by Pakistan Bureau of Statistics (PBS).

He added that according to latest statistics, Pakistan’s exports had declined by a hefty 18.67 per cent in February 2023 on a YoY (year on year) basis, from $2.83 billion in February 2022 to $2.31 billion in February 2023, which called for emergent measures to cope with trend.

Irfan Iqbal Sheikh said that power subsidy had to end by June 2023 with a tangible possibility of renewal or renegotiation. However, the government had withdrawn it for export-oriented industries as well.

Meanwhile, Federation of Pakistan Chambers of Commerce & Industry’s Businessmen Panel has said that the country’s economy has nosedived partly due to external factors but majorly due to non-serious and poor domestic policy decisions and mismanagement of the economic managers, as the rupee saw yet another dramatic fall in just over a month, while the key interest rate has been escalated by the central bank by 300 basis points to the record historic level of 20%, which will destroy the economy completely. Asking the authorities to include serious and progressive fiscal reforms in the IMF program, FPCCI former president and BMP Chairman Mian Anjum Nisar observed that it is very clear that IMF programs focus on stabilization and crisis management rather than growth-oriented policies that require structural reforms.

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He stressed need for a revisit of government policies including the coordination exercise between the Ministry of Finance and SBP, as no independent economist could support the economic policies that are currently in place. He said volatility would remain until IMF program is revived and inflows are materialized. He said the delay in IMF funding is creating uncertainty in currency market and added that a number of payments related to imports have been made, leading to pressure on the rupee, as the move to a market-based currency exchange rate regime is one of a list of actions the IMF wants Pakistan to complete to clear its 9th review.

Meanwhile, Pakistan has already taken most of the other prior actions, which include hikes in fuel and energy tariffs, the imposition of new taxation measures, and withdrawal of subsidies in export and power sectors. He said that the Pakistan’s economy can grow sustainably only if the country introduces productivity-enhancing reforms that facilitate a better allocation of resources into more dynamic activities, and productive uses. He stated that the country’s inability to allocate all its resources to the most productive uses has stunted economic growth. It presents evidence of systematic productivity stagnation across firms and farms. In manufacturing and services, most of the productivity stagnation is related to firms losing efficiency over time.

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The government needs reminding that remittance inflows were 29.4 billion dollars last fiscal year and this large inflow was also due to the fact that the interbank and open market rates did not diverge significantly during the previous tenures. Thus the current untenable situation is due to a perceived policy of exchange rate manipulation and cannot be attributed entirely to the warnings of impending default or criticism of the handling of the economy.

While demanding a clear roadmap for the revival of economy, the Pakistan Industrial and Traders Associations Front has termed the present financial crisis as a nerve-shattering for trade and industry. There was a consensus among the participants of a meeting presided over by the PIAF chairman Faheem ur Rehman Saigol and attended by other office-bearers.

Faheem ur Rehman Saigol said that volatile exchange rate, unprecedented hike in markup rate, repeated increases in electricity rates, gas shortage, price spiral, mismanagement and bad governance have now become the hallmarks of the government. He said that massive fall of rupee value continued to damage the economy, as the rupee witnessed a huge depreciation; one of the highest devaluations of local currency in Pakistan’s history.

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PIAF chairman observed that besides increasing exports and controlling imports the government will have to take administrative measures, as a large demand of cash dollars is seen in the market. He argued that this devaluation of the currency was dictated by the IMF through prior actions and it has nothing to do with macroeconomic fundamentals. He said that there was a complete breakdown of economic policymaking, as the country’s fiscal policy had become subservient to monetary and exchange rate policies.

He said that the monetary tightening and exchange rate depreciation resulted in higher inflation, public debt and debt servicing. The empirical evidence showed that the one percent monetary tightening hiked the inflationary pressure by 1.3 percent in the case of Pakistan, he added. He said that the US dollar continued to rise against the rupee, reaching a record high. The government needs to devise a strategy on war-footing to increase foreign investment in Pakistan so as to stop the upward trajectory of the dollar, he added.

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Exports went down quantitatively while the situation of new investment remained very bleak during the year, they observed adding that the Monetary Policy Committee of the State Bank of Pakistan has raised the key interest rate by 300 basis points, taking it to 20% — the highest level since October 1996. The government can blame the IMF or some unfriendly foreign powers for its economic predicament if it wants. But it cannot deny that it is in hot water today due to its misplaced confidence that it could deviate from the IMF program and turn to friendly countries for its dollar requirements to avoid defaulting.