Pakistan should switch from stabilisation mode: Pasha

[LahoreEstate]

ISLAMABAD (January 28 2009): Pakistan should switch from stabilisation mode to recovery mode in next few months to avoid a recession becoming a depression and poverty level hitting so high that it starts creating law and order problems, says former finance minister Hafeez A Pasha.

Talking in Aaj TV's programme Islamabad Tonight, Pasha said that stabilisation and recovery need a subtle balance and the government should be very watchful on not focusing more on stabilisation than on recovery by cutting development spending and other measures.

Pakistan should take advantage of falling international commodity price, which has relieved its fuel and edible oil prices, that adjustment should start, visible in facts, post-March April.

As inflation falls, it should start cutting interest rates. He said that in last two years poverty incidence substantially increased and it is now around 36 percent because of very high food prices. Still higher inflation and growing unemployment are keeping fears alive to push poverty rate further high and the country may hit 40 percent of poverty by end of this fiscal year.

At that level poverty becomes a crisis point which can start creating a law and order situation, like people snatching eatables from others and suicide rates rising, because of hunger, becomes visible in society. Dr Pasha said that policymakers should liquidate inter-corporate debt by any means.

He said that the government has utilised only 16 percent of development budget, which casts very negative results on construction related sectors causing upsurge in unemployment and poverty. Development spending should be protected carefully. He remarked that negative balance of payment grew rapidly in last 6 years, without changing a point in tax to GDP ratio at 10.5 percent which merits a careful policy watch.

Pasha invoked policymakers' focus on banking sector saying that in first quarter increase in non-performing loans is 15 percent, which shows real estate sector has started showing problems when its growth rate has already gone into negative in first five months of this fiscal year.

Moreover, spread of banking sector increased from 4.5 percent to 7 percent in last 10-15 years, which has artificially increased cost of capital and thus industrial growth. Saqib Sheerani Lead Economist of RBS Bank said that many loans were misused and would be cleared in next one-and-half years and keep showing in banking balance sheets.

Sheerani said that reserve level is very difficult to maintain as no inflows are expected in next two years. He said that there are few black holes in the stock market and this is in the form of costs created as loans taken for other sectors and used in asset markets. He said that millennium development goals (MDGs) should have a very clear focus for the government.

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