The deficit continues to be nudged at from both sides as improved remittances partially offset dismal year-end export numbers, implying the fiscal deficit will continue to be pressured to the downside while the rupee’s fall continues. Unfortunately the cycle is self-perpetuating. Currency weakening will further aggravate the trade deficit, with the obvious negative spill-over on Islamabad’s fiscal posture, not to mention other important economic indicators.
While most measures aimed at expanding revenue are medium to long term initiatives at best, there is still al lot that can be done to inch out of persistent stagflation. For starters, the banking system needs to be stimulated to enhance productive outflow from credit markets. Presently, government borrowing coupled with collective banking sector hesitation to increase private sector lending is compromising much needed investment. And while such arrangements are made and filtered through the system, industry and manufacturing must overcome excess capacity, failing which the engineered credit flow will have little value.
For industry to function, though, relevant authorities must put an end to the energy give-and-take among sectors. Financial prudence dictates that in times of crunch, every possible unit of energy input should be directed towards avenues that generate at least a trifle more in return, while the resulting subsidy toggling can benefit sectors adversely impacted by rerouting energy units. In today’s Pakistan, that implies reorientation of focus for the benefit of industry. The importance of industry functioning at this time has direct implications for overall growth, employment and per capita income. Domestic consumers taking a temporary hit in such a scenario will ultimately benefit more when credit flows to right impact targets and the overall economic situation improves. Right now, there should be no bigger policy concern than stabilising growth and stimulating manufacturing and subsequently growth and employment.