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The Economy Seems to Be Gaining Some Traction

The economy seems to be gaining some traction. The overall impact of the stabilization policy over the next six to twelve months is not known. But early signs show that so far, the government has succeeded in preventing corruption. Revenue is on the rise, and the current account deficit has decreased significantly due to the current account deficit and a decline in imports.

The government appears to be in control

Government appears to be in control, at least for now, as financial conditions improve and the outflow of foreign currency reserves stops. These improvements forced analysts to correct inflation and monetary tightening forecasts. Many analysts now expect headline inflation to average 11-12% as global oil and commodity prices fall compared to 13pc for the 2019-20 budget plan. This is consistent with the latest forecast made by the central bank in the last monetary policy statement.  

Despite market expectations for another hike next month, some countries should rule out the need to further raise the central bank's policy rate, which has already peaked at 13.25pc. Pakistan cannot afford a long-term economic slowdown. Stagnant growth can throw spanners into government's revenue-boosting operations.

According to monetary policy announcements, an unexpected increase in inflation could lead to a modest tightening, and the weakening of the domestic and inflation outlook was “adjusted with interest rates and exchange rates due to previously accumulated imbalances. But in the short term, few analysts believe that central banks will be monetizing due to external account considerations.

The central bank focuses only on rebuilding inflation and reserves, tamed by new governor Dr. Reza Baqir. Conversely, a sooner reclassification of the Consumer Price Index (CPI) can lead to even higher policy rates if it completely ignores the rapid economic slowdown while increasing inflation due to changes in the weight of items in the CPI basket.

Last week, Dr. Baqir defended the decision made by the government and the central bank for economic recovery. He pointed out that the central bank will not change its monetary policy. "We have turned in the right direction and we will surely achieve progress and prosperity if we continue to travel consistently in the direction we have taken.

Inflation and unemployment

He says the country is going through a difficult situation and the economy is weakening. There is inflation and unemployment. People are uncertain. But today I can be sure that these conditions are changing and improving. Policy consistency is the biggest challenge. There is no doubt that our future is bright if there is continuity in policy. Earlier, the central bank predicted that the economy would grow about 3.5pc over its budgeted target of 2.4pc “subject to the latest information available”.

Current high frequency indicators point to a slowdown in economic activity, but this is expected to shift year round thanks to improved market sentiment in the context of the IMF support program. The gradual impact of government incentives on sectors and export-oriented industries. But the cautious optimism of the central bank and its governors did not cheer the market or remove uncertainty. Business sentiment seems to be bottoming out.

The same is true for consumer confidence. The stock market is falling on Friday as the KSE-100 fell below its 29,000 level. Large industries such as the automotive, cement and construction sectors are facing losses. Retailers reported a significant decrease in sales. The factory is dismissing workers to implement production cuts and reduce costs.

Exports are still stagnant due to a drop in unit prices, and exports withheld expansion plans due to increased costs due to huge currency depreciation and high credit prices. Mid- and long-term export growth will depend on growth rates of Pakistani trading partners, progress in domestic structural mitigation and investment in capacity expansion.

Low-income and middle-income families are most affected by the slowdown as purchasing power is substantially hit and the majority struggle to survive. It would be foolish to change policy direction on the early signs of economic stability. But the market needs a guarantee to regain trust.

Governments should consider alleviating

The pain caused by poor business environments, removing structural barriers, making business easier, and providing regulatory and other non-financial incentives for new domestic investments in export-oriented and import-substituting industries. In addition, the NAB (National Accountability Bureau), a surveillance oversight body, should be prevented from harassing businesses, bridging the trust gap between government and entrepreneurs.

Pakistan cannot afford a long-term economic slowdown. Moderate growth can throw a spanner into the government's revenue-increasing business. Similarly, the macro-economic stability that we seek to achieve under the IMF program will not be sustainable unless domestic productivity can be increased to increase exports and reduce imports.

While the government is implementing a stabilization policy, the government must take immediate action to restore consumer and business confidence. The time is running out quickly, so you need to act without additional delays.

Pakistan International Monetary Fund

Resident spokesman for Teresa Daban Sanchez Pakistan International Monetary Fund (IMF) said that if the Financial Action Task Force fails to drop from the gray list, it could affect capital inflows into Pakistan, Said it could endanger financial guarantees. Sanchez said Wednesday that the University of Peshawar's 'IMF Expansion Fund Facility for Pakistan' seminar was held, and the risks of FATF graylists and non-compliance with government financial measures had a significant impact on the program.

The economics department of the university hosted an event attended by vice-president Mohammad Asif Khan, professor, professor and student of economics at Zilakat Khan Malik. Sanchez said opposition to vested interests by the Senate's ruling PTI, fiscal slippage, and majority absenteeism and institutional construction could put the program at risk. The fund representative says Pakistan has developed a program for a stable economy.

If the FATF doesn't drop from the gray list, capital inflows into Pakistan could be suggested," she said. Resident representatives of the IMF said that the main policies conceived under the IMF assistance program are revenue-based fiscal consolidation with a focus on strengthening income and fiscal authority, eliminating exemptions and privileges, greater coordination with localities, and eliminating quasi-cyclical debt.

She said the current program is determined in the market, requires a flexible exchange rate, and the central bank should focus on exchange rate stability. The IMF program envisioned strengthening social safety nets to protect the most vulnerable parts of society and to protect the Benazir income support program and budget allocation for conditional cash transfers.

She said

The Pakistani government has been working on spades since early 2018 to stabilize the economy, including depreciation of exchange rates, hikes in Pakistan's state bank policy rates, adjustments in power and gas bills, and short-term financing from bilateral creditors. A permanent representative of the IMF said the government has developed a comprehensive three-year program to stabilize the economy and lay the foundation for solid and balanced growth.

On Pakistan's major macro-core imbalance, she balances the public deficit with national corporations in the context of poor tax revenues annually, reimburses national and international government for damages, high and unsustainable debt levels and interest payments (25%) Government revenue) was a major challenge.

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