Pakistan: Ongoing Austerity Theater

The recently announced austerity measures, by the Shehbaz Sharif government should ostensibly be aiming at reducing expenses appear to be more about show than actual substance. The decisions by the president and interior minister to forgo their salaries, though commendable on the surface, pale in comparison to the extravagance that continues to plague government spending. The gesture does little to address the underlying issues of fiscal irresponsibility that have led to Pakistan’s current economic predicament.

While restricting cabinet members to three international trips per year and delineating travel class guidelines for various officials might seem like prudent steps, they barely scratch the surface of the belt-tightening needed to navigate Pakistan through its financial quagmire.

Allowing MNAs and senior bureaucrats the luxury of business class travel — which in practical terms for a return ticket to many European destinations means spending approximately a million rupees — is a slap in the face of the concept of fiscal restraint.

The image of lawmakers and bureaucrats jet-setting on public coin sends a conflicting message to the populace they serve, especially when 40% of the country’s population lives below the poverty line.

The disparity in salary ratios between various employees in the UK and Pakistan serves as a shameful mirror for reflection. In the UK, the salary ratio between a janitor and the senior-most bureaucrat is 1:8, whereas in Pakistan, it is an astounding 1:80. The officials who think they are tightening their belts by not flying first class, the president and chief justice can are sorely mistaken.

The austerity narrative pushed by the government — indeed like all other governments before it — collapses under the weight of these contradictions. The privileging of a select few to cushy travel perks, while a significant chunk of the nation struggles to eat three square meals a day, is not austerity; it is austerity theatre.

The critique here is not merely about the scale of the measures but their sincerity. Real austerity involves hard choices and genuine sacrifice, not selective tokenism. The continued allowance of benefits and the half-measures proposed signal a troubling lack of commitment to governance and fiscal responsibility.

If the government means business, lawmakers would do well to pass a resolution in parliament refusing such privileges until the economy stabilizes.

The Prime Minister, services chiefs, and at best, the foreign minister may utilize such travel perks but it is unreasonable to extend these to the rest of the government machinery.

Symbolic gestures won’t do anymore. There is a need for a fundamental reassessment of priorities and spending, with a laser focus on eliminating waste and directing resources towards sustainable economic recovery. Only then can the nation hope to emerge from its economic plight and embark on a future marked by stability and prosperity.

Dawn Editoria

Voting inherent right of overseas Pakistanis

Ironically the successive governments in Pakistan have been denying the voting rights to overseas Pakistani. They are considered less patriotic because they bid farewell to their homeland to lead a better life.

This is spreading disinformation because: 1) they were denied better remuneration and 2) the law and order situation has been getting from bad to worse.

Today, I want to let every Pakistani know that overseas Pakistanis are the real saviors. At an average the country has been receiving around US$1.2 billion from the IMF and the amount has to be repaid, as against this overseas Pakistanis have been remitting more than US$24 billion per annum.

According to the latest information released by State Bank of Pakistan (SBP) during February 2024 overseas Pakistanis have remitted US$2.2 billion. 

Regretfully the SBP press release highlighted “During February 24, remittances decreased by 6.2%MoM but reluctantly admitted 13%YoY increase.

Their contribution demands highest recognition as they remitted over US$18 billion during the first eight months of the current financial year (FY24).

Remittances inflows during February 24 mainly came from Saudi Arabia (US$539.8 million), United Arab Emirates (US$384.7 million), United Kingdom (US$346.0 million) and United States (US$287.4 million).

Since inflow of every US$ is important for Pakistan, the newly elected government must announce an incentive package for the overseas Pakistani. Top the list item should be giving them voting time. The government has 5 years to put the required infrastructure in place. This can’t be done without changing the mind set of policy planners.  

Pakistan Stock Exchange benchmark index posts 6.65%WoW gain

The week ended on July 07, 2023 started on a very positive note, with the market going up 2,000 points from the opening bell and closed the day at 43,899 points.

The rally was mainly driven by the positive sentiment coming out from the Eid Holidays as the country’s authorities reached Staff Level Agreement with the IMF on June 30, 2023. Overall, market ended gaining 2,754 points or 6.65%WoW during the week, breaking the 44,000 barrier during Thursday's trading session, up 660 points in intraday trade.

The market capitalization rose to PKR6,685 billion, up from PKR6,361 billion. In terms of volume, WTL topped the list with 162.97 million, followed by CNERGY with 103.65 million shares.

Foreign exchange reserves held by State Bank of Pakistan (SBP) rose to US$4.5 billion on June 30, from US$4.07 billion on June 23, reflecting an increase of 10%WoW. Total liquid reserves on June 30 were reported at US$9.7 billion, representing an increase of 4%WoW. Moreover, CPI for June 2023 clocked at 29.40%YoY.

Other notable news for the week include: 1) price of petrol was left unchanged at PKR262 per litre, whereas the price of High Speed Diesel was raised to PKR260.5 (effective beginning July); 2) Pakistan’s trade deficit for June 2023 was reported at US$1.81 billion as compared to US$2.13 billion a month ago; 3) the GoP increased advance income tax rate for commercial importers to 6%, from 5.5%; 4) IMF put Pakistan’s external funds requirement at US$91.5 billion over the next three years; 5) the GoP’s total debt skyrocketed to PKR58.96 trillion in May 2023 due to the increased domestic and external borrowing; 6) SBP reserves further increased by US$ 393 million to US$4.463 billion; 7) Saudi Arabia invested US$0.59 billion under SIFC; 8) Pak Eurobond yields witnessed a significant increase on a MoM basis.

Sector wise, Modarabas/Leasing Companies/Synthetic & Rayon have been worst performers, whilst Refinery remained an anomaly.

Top performing scrips of the week were: NRL, AIRLINK, AVN, UNITY, and INIL, while top laggards were: PGLC, IBFL, GADT, EFUG, and PAKT.

Flow-wise, major net selling was recorded by Banks/DFIs with a net sell of US$5.48 million. Insurance Companies absorbed most of the selling with a net buy of US$5.72 million.

After the bullish end to the previous week, market participants await further clarity regarding the IMF bailout package. The market may observe momentum once the lender concludes its board meeting on July 12, 2024. It is believed that the country's impending risk of default diminish before the market can establish its direction.

Analysts reiterate stance to follow a cautious approach while picking up scrips and continue to advocate dollar-denominated revenue stream scrips (Tech and E&P sector) to hedge against currency risk or high dividend-yielding scrips.

  

 

 

 

 

Miftah the lesser you talk the better it will be for you and the incumbent government

The consensus is growing among the analysts that Miftah Ismail, Finance Minister of Pakistan talks a lot and often inconsistent and incoherent, which could make his life miserable with the passage of time. 

The other suggestion is that he should bid farewell to Imran Khan animosity and focus on putting the economy of the country back on track.

Allow me to refer to his statement regarding Dr. Reza Baqir, the outgoing Governor of State Bank of Pakistan. Ismail had indicated in a tweet that the government would not be providing an extension to Dr. Baqir. It may be called that he was often termed an appointee of the International Monetary Fund and follower of the IMF dictate.

However, on his departure he admitted, "I want to thank Reza for his service to Pakistan. He is an exceptionally qualified man and we worked well during our brief time together. I wish him the very best."

He misses no chance of maligning Imran Khan for agreeing with the IMF on conditions which had opened floodgate of inflation in Pakistan, the most notorious being the hike in the tariffs of electricity and gas and withdrawal of different types of subsidies.

It is a welcome sign that the IMF has extended the timeline of the current program and also promised to increase the amount by US$2 billion. However, the honourable minister hasn’t disclosed the conditions attached to this ‘favour’. The cat will soon come out of the bag when the IMF starts its review soon after Eid Holidays.

Even a person of ordinary wit knows very well that IMF bailout package will be attached with: hike in revenue, hike in electricity and gas tariffs and withdrawal of subsidies. It is also no wonder that Miftah hasn’t developed ‘homegrown’ plan and would be obliged to follow the IMF recipe.

I am not sure if the Minister is fully aware of massive smuggling of food items to the three neighboring countries, enjoying long and most porous borders with Pakistan. Food items are being fled to Afghanistan, Iran and India only because of the faulty Trade Policy being followed by Pakistan.

Ismail faces a daunting challenge of controlling mounting ‘circular debt’, which is nothing but rampant pilferage going on with the connivance of employees of the utility companies. Analysts say, with every hike in tariffs the incentive grows for pilfering electrify and gas.

Minister has to convince IMF that Pakistan suffers from cost pushed inflation and the hike in interest rate renders the exporters uncompetitive in the global markets. Exports just can’t be increased without exploiting Pakistan’s comparative advantage and making exports competitive in the global markets.

Last but not the least, Pakistan has to contain import of luxury and/or unnecessary goods to contain trade deficit. WTO Article 6 provides an option to Pakistan to impose quantitative restrictions on imports; the option must be exercised without further waste of time.