Why PTI is at an economic crossroads?


For a party contesting elections in less than two years, the PTI must keep its way.

The fourth year of the Pakistan Tehreek-e-Insaf (PTI) coming to power is no different in terms of post-election economic performance. In these critical times, the government is resorting to war, saying that the economic outlook is not bleak. An example of this is when Raza Baqir, the head of the State Bank of Pakistan (SBP), recently talked about how the devaluation of the currency has benefited the families of non-resident Pakistanis as it has contributed Rs. In terms of remittances to Pakistan increases. It is not hard to imagine that Baqir was trying to come up with a rationale for the sharp fall of the greenback against the US dollar. However, this ‘things can get worse’ can really be a counter-productive strategy.

The rupee is rapidly depreciating against the US dollar and pushing up the prices of imported commodities like petrol which is reaching a new peak every fortnight. The rise in prices of products like petrol is regressive in nature as petrol has the highest percentage of income for the population below the pyramid. That is why every announcement of an increase is met with outrage. It also affects many essential goods and services, crushing the backs of the poor. As a result, the Consumer Price Index (CPI) touched a year-on-year (YoY) of 9.2% in October, and the latest Sensitive Price Index (SPI) data shows that double-digit inflation is very close.

The reason for the currency’s decline is the trade deficit, which has risen to more than 15 15 billion in the first four months of this fiscal year. The oil import bill has increased by more than 6 6 billion, which translates into an annual increase of about 95%. However, textiles (the largest export cash cow) managed to grow only 26% year-on-year to 6 6 billion. This means that a 12% year-on-year increase (YoY) of 9. 9.4 billion to 10. 10.6 billion in remittances between July and October 21 is not enough to fill the trade gap.

For a party contesting elections in less than two years, the PTI must keep its way. The key to calming angry citizens is to stop the rise in prices, especially food and petrol. In the event of an expected reduction in inventory, the government can effectively manage the supply and demand forces that allow imports, and vice versa. One of the things they should avoid is manipulating prices by pushing them above or below the market balance. However, they should also keep an eye on the conflict between producers or sellers.

Since the rise in crude oil (Brent) prices is external, PTI can avoid further increase in petrol price by either stabilizing the exchange rate or reducing the levy (after zeroing sales tax). The inclusion of the latter is a further compromise on revenue which makes it wise to choose the second option.

So far, the SBP seems helpless in taking a number of steps to prevent the currency from falling. Even the impact of the dollar inflow from Saudi Arabia was short-lived as the rupee began to fall again. This makes it necessary for the SBP to increase the rate by at least 50 to 75 bps in advance of the Monetary Policy Committee (MPC) meeting this month. This may be a necessary precautionary measure to obtain IMF approval for the suspended EFF program.

These two activities will have a huge impact on the Foreign Exchange (FX) market and will likely ease the pressure on the rupee. It will also give people a much-needed place to breathe in the suppression of economic affairs. At this critical juncture, they must understand that the key to appeasing Pakistani citizens, especially foreign voters, lies in empathy rather than resolving unresolved issues.

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