One of the most frightening consequences of the current slavish obedience to the IMF has shown up in the dismal investment figure for the current fiscal year, which at 13.1 percent of the GDP, is to record a 50-year low. The combined saving and investment figure largely determines the next year’s GDP growth, and this low figure therefore does not bode well for the coming year. The poor investment figure has drawn attention to the role of the Special Investment Facilitation Council, set up last year, and its failure despite much fanfare, to deliver all that much. Perhaps part of the problem is that the SIFC is too narrowly focused on foreign investment, while the National Accounts Committee came up with an overall figure for investment, which also reflects domestic investment by local entrepreneurs, who will have gained access through loans to bank deposits or by appeals to the public through the bourses, for savings to invest as capital in their enterprise. An important part of investment comes from the Public Sector Development Programme. Cutting it is always anti-growth, and perhaps the most direct contribution to growth that any Finance Minister can make is to prevent the PSDP being cut.
Unfortunately, when it comes to reducing spending, the first thing the IMF seems to see is the PDSP, where it enforces cuts, which have a negative effect on the savings rate. To make matters worse, the money thus saved goes to make debt-servicing payments. Perhaps the most effective contribution any Finance Minister can make is to defend the PDSP. Things have reached a pass where PSDPs are pitched in full expectation that they will be cut. This time, the IMF has to be told that the PSP will remain at the level where it is pitched, and Finance Minister Muhammad Auranzeb must be prepared to defend it against any cuts.
Another sign of the pressures on the economy that must be avoided came in the form of a State Bank report on inflation, which blamed political uncertainty as one of the prime drivers in the high inflation, which has been confronting the consumer for what is now a prolonged period. Again, the IMF is to be blamed, for it is behind the fuel and power tariff hikes that have fuelled inflation of other commodities, apart from their own direct pressure on the consumer. How to stop the IMF from being anti-growth and pro-inflation, while trying to extract a new programme from it? Mr Aurangzeb has his work cut out for him.
