Page 20 - CMA Journal (Mar-Apr 2023)

Focus Section

3) Unprecedented Shocks and Steps to be taken for Pakistan’s
Eroded Commitment:
Future Growth
• COVID-19 pandemic in 2020 and devastating floods in a) Poverty Reduction and Social Protection
2022 disrupted economic growth.
To significantly reduce poverty and strengthen social
• Inflation surged, exacerbating social pressures.
protection, increased focus and investment in social
• Pressure from vested interests complicated policy spending are necessary. The IMF has commended the
adherence. enhancements made to the Benazir Income Support
Program (BISP), including expanding its reach to more
4) Energy Sector Challenges and Exchange beneficiaries and adjusting benefit levels for inflation.
Rate Interventions: However, the IMF emphasizes the ongoing need to improve
the generosity of BISP stipends and ensure that all deserving
• Deep-rooted issues in the energy sector remained families are enrolled in Conditional Cash Transfer (CCT)
unresolved. schemes.
• Pursuing expansionary policies for rapid growth had b) Inflation Control
unintended consequences.
The IMF has strongly criticized the State Bank of Pakistan
• Foreign exchange interventions to stabilize the (SBP) for its management of inflationary pressures.
exchange rate proved challenging. According to the IMF, the SBP's monetary policy has lagged,
not reacting promptly to the increasing inflation from 2020
In hindsight, addressing these complexities requires a
onwards. The IMF staff report emphasizes several important
holistic approach, long-term commitment, and adaptive
points:
policy measures.
• Tightening Monetary Policy: IMF emphasizes that
The fiscal effort outlined in the FY24 budget represents a
monetary policy should remain tight, proactive, and
crucial stride toward ensuring fiscal sustainability. However, data-driven. While the recent policy rate hike is a positive
it must be complemented by further reforms. The
step, the tightening cycle should continue if necessary
consolidation proposed in the FY24 budget is appropriate,
to combat inflation and support external rebalancing.
and it is reinforced by measures aimed at enhancing
revenue mobilization and curbing non-priority • Real Policy Rate: In the short term, the forward-looking
expenditures while safeguarding social assistance. To real policy rate needs to return to positive territory. This
mitigate significant risks related to macroeconomic stability measure aims to re-anchor expectations and achieve the
SBP’s inflation objective over the medium term.
and fiscal sustainability, strict budget execution is
imperative. This entails restraint on current spending and • Refinancing Schemes: Implementing the plan to phase
vigorous efforts to boost revenue collection through out refinancing schemes will enhance monetary policy
enhanced tax administration. traction and bring transparency to these programs.
Looking beyond FY24, the focus should remain on • SBP Independence: The IMF underscores the
developing a more progressive, streamlined, efficient, and importance of strengthening and protecting the
equitable tax system. Such a system would create ample independence of the SBP.
room for critical development initiatives and social
A tighter monetary policy stance is critical for reducing
spending, including measures to strengthen resilience inflation, anchoring expectations, and supporting external
against climate shocks. Improved public financial
sector rebalancing. While the recent rate hike is welcome,
management is pivotal in maximizing the efficiency of our
continued vigilance is necessary given the persistence of
limited resources
inflationary pressures.
Challenges and Reforms c) Market determined Exchange Rate
• Pakistan grapples with persistent challenges such as To withstand external shocks, uphold competitiveness, and
fiscal deficits, external debt, inflation, and low foreign replenish international reserves, it's vital to let the exchange
exchange reserves. rate be determined by the market. This strategy encourages
inflows and promotes stability. Moreover, it's essential to
• IMF programs come with conditions, necessitating restore foreign exchange (FX) liquidity by allowing
reforms in areas like taxation, energy, and public sector unrestricted price signals. To accomplish this, it's crucial to
enterprises. avoid informal interventions in the market, such as
influencing import management and LC approval guidance.
• Implementing these reforms is crucial for Pakistan’s
These measures are necessary to regain public confidence in
economic stability and progress.
the exchange rate system. Additionally, implementing
• Navigating these challenges requires concerted efforts, suitable monetary and fiscal policies along with robust
sound policies, and a commitment to sustainable reforms will bolster trust in the rupee and tackle external
development. imbalances.
18 ICMA’s Chartered Management Accountant, Mar-Apr 2024