On the political front things are getting almost clear at the end of CY 2019. Though most of our anchors, journalists and politicians are using dirty language and words while making their comments but that do not change the objective conditions of the country but in fact exposes the hollowness of these figures of their mindset.
In November 2019, PML N has succeeded in saving their leaders and now by sitting abroad they can again enter in to Pakistan politics at the timings they choose and of their choice. PPP leadership is passing their time with wait and see and to strike at the time of their choice. Moulana Fazlur Rehman is playing the game of coming forward and going back in collaboration with known or unknown forces. So he also knows about his fate.
Now we come to the ruling party of the country. Sometime they try to deliver but on the next day Imran Khan with his ill directed speeches and words wash away all these efforts. Three of his jokers hired from the PPP or PML N add up in to his miseries. So one thing has got clear that whether Imran Khan complete his term or not but he would do it without any governance and political will.
So what is left behind? The solution is only to form a national government to go ahead with needed legislation and reforms or to go for fresh elections but whether establishment agrees with it or not is a question and its answer would come in the coming days
In the wake of ongoing political turmoil The State Bank of Pakistan (SBP) has again left the benchmark interest rate unchanged on 22nd Nov 2019 at the eight-year high of 13.25% for the next two months to target growing inflation. This was the second consecutive monetary policy in which the State Bank left the benchmark interest rate unchanged. Earlier, the MPC hiked the key lending rate by a massive 7.5 percentage points since January 2018 to 13.25% in July 2019.
But who is responsible for this ongoing inflation. They are the government administered prices and rise in prices of food items, primarily due to temporary supply disruptions. The price of flour has increased notably in recent months after a gap of a couple of years. Apart from that, prices of two major commodities – tomato and onion – which are a must for preparing food – have shot up. More importantly, the government is considering a further hike in energy (power and gas) tariffs these days. Such hikes, if approved, will spark a fresh wave of inflation in the country.
Though central bank, believes that inflation, especially food inflation, as a temporary phenomenon but it has also to go for supporting business activities now at halt by reducing its interest rate. For this one has to get out of books of economics and to be practical in making its decisions.
By looking in to SBP own figures, in LSM only Fertilizer, Electronics, Engineering rubber products having weight age of 10.7% have been indicated as with positive growth in FY 2020 whereas other all areas are in negative growth. Agricultures is showing 0.3% growth, Industies as 1.4% growth and services as 4.7% growth. By this estimate SBP is indicating GDP growth of 3.3% for 2020 but whether the current growth would inch up from below 3% to upper 3% is a question for all.
Investment for FY 2020 has remained at 15.4% as compared to 16.1% in 2017 whereas savings have remained at 10.8% in FY 2020 as compared to 12.0 % in 2017.
The central bank has, however, kept its inflation projection unchanged at 11-12% for the full fiscal year 2019-20.
On Current account side Pakistan has shown some improvement reducing its deficit to $ -1.5 billion in July-Oct FY 2020 as compared to $-5.6 billion in FY 2019. On import side the figures remaining at $ 14.6 billion in July-Oct FY 2020 as compared to $ 19 billion in FY 2019. The exports have marginally shown improvement showing $8.2 billion in July-Oct FY 2020 as compared to $8.0 billion in FY 2019. The major fall in imports came from the petroleum Group that can inflate again. Foreign Direct Investment has fallen to $-648 million in July-Oct FY 2020 as compared to $ -189 million in FY 2019. Workers remittance has also fallen to $ 7.4 billion in July-Oct FY 2020 from $ 7.6 billion in FY 2019 mainly from UAE.
On Fiscal side the revenue has increased to Rs 6.3 billion in July-Oct FY 2020 as compared to Rs 4.5 billion in FY 2019 but at the same time expenditure has also increased to Rs 10.5 billion in July-Oct FY 2020 as compared to Rs 8.3 billion in FY 2019. So in nutshell fiscal deficit have remained almost the same.
The latest production estimates of major Kharif crops suggest that the agriculture sector is likely to grow in line with projections although cotton production is likely to remain below target.
The external debt has risen to $ 84.5 billion in Sept 2019 from $ 83.9 billion in June 2019. On account of appreciation of PKR by 5.6% since hitting the low in June 2019, the gross foreign currency reserves have risen by $1.16 billion by November 15 and the SBP has reduced its foreign currency swap/forward liabilities by $1.95 billion by the end of October 2019.
But main concern hampering Pakistan economy is coming from slow business activities mainly due to high interest rates. Private sector credit has fallen by Rs 4.1 billion during the first four months of the current fiscal year 2020 as compared to an expansion of Rs 223.1 billion during the same period of last year on account of slowing of economic activities.
So the situation is very clear and it is not a hundred million question. SBP should have reduced its interest rate at least by 100 bp on 22 Nov 2019. Highest interest rate among this region other than Pakistan is of Sri Lanka with 8%, India 5.15% and china as 4.35%.