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Danger of financial shocks

Danger of financial shocks

Former State Bank governor Dr Ishrat Husain, in a statement sometime earlier, warned the government to beware of the external and internal shocks to ward off any possible interruption in the way of smooth economic growth. The next year is the election year and could pose risks in many ways. The ruling political parties could be forced to accept unwritten quid pro quo agreements by certain powerful lobbies and pressure groups against their support for unreasonable demands at the time of elections. He admits that Pakistan is again going on upward trajectory which must not be interrupted any stage by anyone. The upward movement should not be disturbed in any way no matter the ruling party comes back to power again or any opposition party wins the election. The continuity of the policies should be ensured at any rate. According to him, inconsistency is detrimental for the economy.The government is claiming that it has achieved macroeconomic stability. The next government will have two paths to follow and that are to consolidate and build upon these gains to undertake policy reforms to help speed up economic growth to reach six to seven percent a year. Otherwise, the government could fritter away these gains and pursue populist measures, appeasing powerful groups, backtracking on reforms and yielding to pressures.

There is a need to hear voice of reasons as he has warned the government to avoid approaching the International Monetary Fund during the post-election period by prudently handling the economic management before elections.The current situation critically depends on the prudent management of external accounts. The remittances sent by the expatriate Pakistanis and import of oil are correlated, but the volume of remittances could be lowered if oil-producing countries cut down investment projects and retrench foreign workers due to low oil prices in the international market. What needs to do is that to reject external borrowings by increasing the exports of value added goods.

The country will have to explore new markets and should integrate into global value chains if it wants to enhance exports.Dr Husain points out Pakistan’s tax capacity which covers only 11 percent of the population and half of the taxpayers are from the salaried classes. But he falls short of advising the tax authorities to simplify tax collection procedure and minimize the involvement of officials in the tax collections. Instead, tax collection should be made on the pattern of the utility bills. A taxpayer should simply visit any bank and deposit the money liable on him.