Daily Times Editorial Dec 16, 2013

Dar’s dollar optimism Finance Minister Ishaq Dar’s ‘advice’ to businessmen attending the All Pakistan Textile Mills Association’s dinner at the Governor’s House in Lahore on Saturday to cash their dollars without delay as the dollar will not go up any further did not go down well with his audience. Grumbling was heard from the attendees that the Finance Minister had tarred the entire business community with the brush of dollar hoarding. There may have been those amongst the audience whose resentment was justified, but who does not know that the alarming rise of the dollar against the rupee in recent months has persuaded many people, including businessmen, to hedge their money assets by converting them to dollars. One does not know what Mr Dar’s certainty and optimism about the turnaround in the rupee’s value is based on, since even the marginal improvement of the local currency against the dollar in recent days cannot be taken as more than a few drops of welcome rain. Speculation against the rupee has been fuelled by lack of confidence in the current state and future direction of the economy (note the government’s claim of 5.1 percent GDP growth since it took over) and depleting foreign exchange reserves (less than $ 3 billion left with the State Bank, with the government turning to the private banks’ dollar holdings to bail out the country’s import requirements). In his optimistic vein, which smacks more of desperate attempts to restore confidence than fact, Dar claimed foreign exchange reserves would climb to $ 20 billion in three years. Time will tell. Dar is banking on the expected inflows of Coalition Support Funds $ 1.5 billion, PTCL’s outstanding privatisation proceeds of $ 800 million, World Bank and other aid for large infrastructure projects to ease the foreign exchange reserves squeeze. But each one of these sources has problems and roadblocks on the path of realisation. There is no escape from the fact that for confidence to return, Pakistan’s trade deficit, balance of payments and investment all have to show improving trends if the rupee’s precipitous slide is to be halted and reversed. With growing confidence will follow a reversal of dollarisation, arresting capital flight and increased investment, both domestic and foreign. Given the perilous state of the economy because of the above listed factors plus energy, terrorism and law and order, there are unfortunately no short cuts to economic revival. The Finance Minister’s efforts to spin a highly optimistic picture, even if well intentioned, run the risk of adverse reactions if his optimism turns out to be overblown. His cause may be better served therefore by sticking to the facts, grim as they may be. Another example of the economy’s constraints is the announcement by Dar to provide scarce gas two days a week to the captive power plants of the textile sector. The gas supply deficit is causing contradictory pulls from the needs of industry, commerce (especially CNG) and domestic use in winter. Robbing Peter to pay Paul may not be the best way forward. The government would be better advised to consider gas imports for industry rather than cutting back, for example, on domestic consumers (a politically potentially explosive measure). The further promise by Dar to provide easy credit for business flies in the face of the tight monetary policy being pursued by the State Bank in a futile effort to curb inflation. The right hand of the government therefore has to be aligned with the left hand in a consistent manner if credibility is not to be damaged. The government’s tax amnesty for black money to boost investment may succeed, but the tax reforms committed to the IMF will thereby be postponed, if not permanently stymied. The good news of course is Pakistan being given the GSP Plus market access at reduced duty rates to the European Union. But to take full advantage of this concession, the obstacles in the way of industrial production, particularly the textile sector, because of energy constraints has to be tackled on a war footing. The government has its work unenviably cut out for it in the economic sphere. While they have the good wishes of the country to succeed, realistic and well planned policy measures are called for, not dreaming of pie-in-the-sky.