State Bank of Pakistan (SBP) announced revised prudential regulations for consumer financing designed to moderate imports and demand that could possibly have a negative impact on growth. This concern was reflected in the most recent Monetary Policy Statement stated 20 September 2021: “since its last meeting in July, the Monetary Policy Committee noted that the pace of the economic recovery has exceeded expectations. This robust recovery in domestic demand, coupled with higher international commodity prices, is leading to a strong pick-up in imports and a rise in the current account deficit. While year-on-year inflation has declined since June, rising demand pressures together with higher imported inflation could begin to manifest in inflation readings later in the fiscal year.”
Fuelling demand through monetary and fiscal incentives to better cope with the pandemic onslaught has been the preferred policy in most countries of the world and Pakistan is no exception. However, the government’s focus on extending extraordinary concessions, particularly with respect to granting a tax amnesty, read not seeking source of income, for the construction sector in particular, as well as allowing consumer credit that fuelled purchases, particularly automobile purchases, has proven to be a major reason for the growth rate being double to what was projected – 3.94 percent instead of the projection of 2 percent. In other words, the 2020-21 growth is premised on a rise in demand, part of which was delayed due to the pandemic and the associated lockdowns, rather than output and while the one should automatically feed the other, yet the time lag requires appropriate policy decisions and the recent revisions in the prudential regulations are certainly appropriate – revisions that include reducing the maximum auto-finance tenure for imported cars from 7 to 5 years, maximum financing not to exceed 3 million rupees. However, the reduction by one year – from 5 to 4 years – in the financing for educational purposes is baffling especially as the job market remains tight. One would hope that repayment of educational loans be made subject to getting a job.
This newspaper has been a proponent of a complete ban on non-essential imports (imported cars certainly can be so categorized). However, the government must also focus on reducing its own non-essential imports. More importantly, it must strive to ensure that unwarranted and inordinate delays in decisions to import essential items do not necessarily occur due to the fear of National Accountability Bureau (NAB). During the past three years delays in procurement of RLNG, wheat and sugar, according to some conservative estimates, have inflected on the national exchequer the losses worth over 2 billion dollars. Surely, this requires executive’s attention. It is therefore important to note that such delays have led to the removal of two special assistants to prime minister on energy. More recently, the Economic Coordination Committee (ECC) of the Cabinet has sought an inquiry into the delays in procurement of commodities after receiving executive approval to proceed with imports. However, these measures, appropriate though they maybe, do not take account of the large losses incurred by the treasury – taxpayers’ money – due to the delays and hence the government needs to formulate a policy to deal with such delays.
