A reduction of Rs 4.04 per unit was the main measure announced by Prime Minister Shehbaz Sharif, along with a cut in wheeling charges for industry, as well as a cut in the export refinance scheme rate from 7.5 percent to 4.5 percent. He also announced that leading exporters would get blue passports for two years, a measure designed to stroke their egos after the measures designed to help their pocketbooks. He announced the package at the award ceremony for the top exporters of 2024-25, an occasion he also used to proclaim his government’s achievements in the economic field.
It was not solely a matter of political boasting, but he also showed a macroeconomic vision which enables his government to make policy that might work. True, the government has farmed out economic policy to the IMF, by his own admission, but still, some of the things the IMF has recommended seems to have had an effect, as he himself has mentioned. Inflation is down in single digits, the policy rate is now down to 10.5 percent, and forex reserves have doubled over three years. Yet one could sense his frustration when he said that exports had been something of a letdown, and that all of the positives did not mean much without growth. This is the divergence between him and the IMF, because while growth is essential to his political survival, the IMF simply doesn’t care. As the PM said, the purpose is not to achieve short-term stability to be followed by a bust and another foreign exchange crisis, but to achieve long-term growth.
The economics is simple. The country is in a foreign debt trap, and cannot escape until it exports much, much more. The PM spoke of the need to grow software exports from $3 billion to $30 billion in five years, an indication that he might be counting his chickens before they are hatc hed, The EU-India trade deal might deprive Pakistan of a traditional market for exports, as India gets advantages. Pakistan is already talking to the EU, though the time was probably earlier. Also, it should be noted that the deal is not only about trade, but geopolitics too. One reason the EU made the deal is because it is searching for trade alignments other than the USA. Considering the recent attempts to curry favour with the USA, Pakistan has its work cut out.
