In the meeting of Monetary and Fiscal Policies Coordination Board (MFPCB) held on 28th August, 2019 under the chairmanship of Dr Hafeez Sheikh, Advisor to Prime Minister on Finance, discussion was reported to have centred around the strategy to revive growth and control price hike in the economy. In a press release issued by the Ministry of Finance late at night, it was revealed that the emphasis in the meeting was on regulating the policy rate "in a way to confine external sector vulnerability by focusing on and prioritising the export-oriented sectors to generate more exportable surplus and become more competitive." The meeting also agreed on "the need for consistent and deep-rooted structural reforms in various sectors." While reviewing the fiscal position, the MFPCB also observed that "there was a need to narrow the fundamental revenue-expenditure gap and the export-import gap by ensuring prudent expenditure management and efficient resource mobilisation strategy." The government decisions like upward adjustment in gas and electricity prices, market-based exchange rate adjustments and increase in interest rates were also reviewed. It was agreed that SMEs should be uplifted by providing access to finance that will contribute to generate export surpluses and create jobs. As regards the concern about higher interest rates, official sources disclosed that the Minister of Planning and Development had a meeting with the officials of his ministry wherein he was informed that increase in interest rates is one of the major factors for economic slowdown and even a slight increase in interest rates would have a very negative impact on the economy.
It may be mentioned that the platform of MFPCB provides an opportunity to the relevant authorities including the Minister or Advisor of Finance and the Governor State Bank of Pakistan to review the current economic situation with a view to injecting consistency into monetary, fiscal and exchange rate policies and the Board is supposed to meet every quarter to deliberate on the relevant issues. The meeting on 28th August was particularly important because the present government is facing increasing criticism for slowing down economic activities, high inflation and growing unemployment in the country. In this connection, concerns have also been raised in the cabinet meetings about the economic difficulties of ordinary people which may make the government unpopular and provide a whip to the opposition parties to beat the PTI party. The proceedings in the meeting show that the emphasis of the participants was mostly consistent with the ground realities and reflected their view that perhaps the economic team had over adjusted the discount and exchange rates. The concerns of the cabinet including the Prime Minister are justified due to political considerations and while stabilisation process can be slowed, if IMF can be persuaded, it cannot be reversed at this juncture, as the masses could get some relief for a few months but the country could suffer immensely on a longer term basis and fail to achieve the objective of sustainable growth with stability.
Anyhow, the anxiety of MFPCB over the widening fiscal deficit which rose to a historic level of 8.9 percent of GDP during 2018-19 was very much appropriate to the current situation. The data on tax receipts for the first month of FY20 is also not encouraging. While the current expenditures are increasing sharply, revenue receipts are lagging behind and are unable to narrow the budget deficit. Unfortunately, however, two major items of expenditure are very difficult to control. Debt servicing and defence expenditures will continue to rise till the overall stock of debt is not reduced and tension on borders is not eased. The problem is that expenditures on these two items are also not likely to fall anytime soon. Hopefully, the economic team would come up with a viable plan to stay the course as regards stabilisation keeping in view the ground realities.