Worrying economic portents

ByAsrar Raouf

Former Civil Servent


October 10, 2022

Asrar Raouf looks at the current economic scenario

The worrying economic portents of the country are not out of the woods as the capacity to improve has been so badly mauled that the economic fundamentals have been strongly shaken. The financial situation is in limbo with the international credit rating agencies cutting Pakistan’s rating further down and any chances of it climbing up appear remote.

The havoc wreaked by massive floods is now started to be felt by the country with inflation starting to climb and prices refusing to come down. The situation is expected to worsen as the agricultural output is predicted to be very low compelling imports of food grains to add to the import bill and putting pressure on the already overburdened rupee.

The political uncertainty is almost perennial with Islamabad constantly in the grip of fear of a long march by hostile groups with no assurance of what will transpire in the future. These factors are certainly enough for depressing economic growth and they are all man-made but there appears to be no attempt in sight to overcome them and that indeed is most worrying.

The most worrying aspect concerning financial policymakers is the propensity of the market players to milk the economy. This is the case with the recent fluctuation witnessed in the value of the Pakistani rupee which badly lost its value against the dollar mainly because it was manipulated by currency dealers in cahoots with influential city bankers.

The issue has been raised at the highest state level and in this context, it was reported that the State Bank of Pakistan told a parliamentary panel that a probe was currently in progress to get to the bottom of purported massive exchange rate manipulations by the country’s top banks amid low foreign exchange reserves before taking formal action against the culprits.

SBP Governor

The public representative in the national assembly took serious notice of reports that the banks and foreign exchange companies had taken undue and illegal benefits of the country’s low reserves. Members were of the view that during recent volatility in the exchange rate and the difference between the interbank rate and the rate offered by exchange companies, the banks earned exorbitant profits as reports suggest banks charged Rs.10 per dollar higher premium.

The members deplored that banks were involved in volatility in the exchange rate and acted against the interest of the state. They asked the SBP to assess the extent of violation by both the entities viz. banks and exchange companies, and take exemplary action so that no one dared to play with the economy of the country.

SBP Governor responded that an inquiry had been ordered against banks involved in undue profit in exchange rate variations but it would be premature to conclude if they manipulated the exchange rate and if found guilty, action would be taken against them accordingly.

He added that at this stage a few banks and forex exchange companies were suspected of involvement in exchange rate volatility. The central bank had taken cognizance and initiated strict monitoring of the foreign exchange operations of banks and exchange companies and inquiry proceedings into the violations of SBP regulations.

He also said that the names of banks were no secret and his deputy interjected that the banks that earned heavy profits included Habib Bank, United Bank, Allied Bank, National Bank, Meezan Bank, Bank Al-Habib, Bank Alfalah, and Habib Metropolitan Bank but he hastily made it clear that it does not imply that these banks were guilty but at this stage, certain transactions had been identified and more banks will also be examined in the next stage.

Economic Planners Worried Situation

Another serious issue that has worried economic planners is the consistently escalating prices of high-demand vegetables — tomato and onion — that have surged atrociously putting people in serious jeopardy. The people rightfully think that it seems that there is no one to check the open market, as the tomato and onion prices have gone out once again from the financial reach of a common man as tomatoes are selling at Rs.450 per kg and onion at Rs.170 a kg in the open market.

It is too much and beyond reaches now. The prices of various vegetables and fruits have been rising due to short supply across the country since August as floods have destroyed crops in Balochistan and Sindh. For bridging the shortfall, the government allowed duty-free imports of tomatoes and onions from Afghanistan, Iran, and China barring India.

Before this, in May, the increase in petroleum products had also caused a massive rise in the prices of fruits, vegetables, and other commodities in the open market. Before increasing petroleum products prices in May, the per kg price of potato, onion, tomato, garlic, ginger, and cucumber was Rs.27, Rs.63, Rs.66, Rs.140, Rs.205, and Rs.57, respectively.

The government appointed Tariq Bajwa – an old confidante of Finance Minister Ishaq Dar and a former central banker and fiscal expert — as an aide to the Prime Minister on Finance in a move towards reshuffling the economic team. Bajwa is among those five lucky ministers of state out of 29 who have also been assigned a portfolio.

The prime minister’s cabinet has seen a constant increase, many of them without portfolios. With the fresh addition, the total number of federal ministers, ministers of state, advisers, and special assistants has touched 75. Some more appointments are also expected in the economic team.

Bajwa And Dar’s Politics Affairs

The fresh appointment was made a week after Dar took the oath as finance minister following the unceremonious exit of Miftah Ismail who had been credited with saving the country from default. Out of 35 federal ministers, two are without portfolio which is rare, including Ismail.

Bajwa’s appointment has been made on Dar’s recommendation. Bajwa had served with Dar in the capacity of chairman of the Federal Board of Revenue and Economic Affairs and Finance secretaries. Dar had also made him the State Bank of Pakistan governor after the acting central bank governor unilaterally decided to devalue the currency in late 2017.

In May 2019 Bajwa stepped down from his post after the then-prime minister Imran Khan sought his resignation. Bajwa was holding a statutory position for a period of three years that would have ended on 6 July 2020. And Bajwa had also remained close to Dar during his days in exile in London, unlike others who severed ties with him.

Bajwa will look after operational matters of the finance ministry and will effectively be an adviser to Dar. The role of Minister of State for Finance Dr. Aisha Pasha, who has been appointed by Shehbaz Sharif, may be further marginalized after the inclusion of Bajwa.

Dar is also expected to make some more changes at the advisory positions and bureaucratic levels with a view to appointing trustworthy and like-minded people. Some changes in the Federal Board of Revenue are also expected soon. One might condone such changes in the name of change of the political executive at the helm but it may certainly be compared with the game of musical chairs played during the tenure of the previous regime. The Weekender


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