The Ministry of Finance has stated that the government’s macroeconomic adjustment and demand management policies for stabilization have started making an impact, as visible in the moderate growth of 3.3 % in FY 2019.
In a statement, the ministry said that the results need to be seen and contextualized in the backdrop of a very difficult economic situation inherited by the government.
The statement also mentioned that the measures taken by the government during the last year have not only effectively halted the economic decline, they’ve also kick-started various sectors of the economy to ensure positive long-term results for businesses and the common man.
The Finance Division rejected the news report published in an international newspaper which claimed that the “Voters, traders are feeling the pain of the government’s economic plan” due to “rising inflation” and other reasons.
The Ministry maintains that when the present government assumed the office, the economy was facing multiple challenges relating to fiscal, external and real sectors of the economy. The unaddressed macroeconomic imbalances and long-awaited structural reforms needed urgent policy actions.
To address these issues, the present government introduced a comprehensive set of economic and structural reforms. The impact of macroeconomic adjustments and demand management policies for stabilization are now visible as FY2019 witnessed a moderate GDP growth of 3.3 percent, said the statement.
The Ministry pointed out that the media reports while referring to increase in prices, did not take into consideration the major causes behind the rise and only stated the figures whereas the major reasons for the rise in inflation are:
- Sustained pressure on the foreign and current account deficit, which induced the government to adjust the prices upwards and also impose regulatory duties on imported items.
- Supply constraints of certain food items and imposition of FED on cigarettes.
- The impact of the rise in fuel prices and exchange rate depreciation.
The Finance Division further stated that the rise in inflation was mainly due to delay in policy adjustments required during FY 2018 as the present government had to make difficult decisions of upward adjustment in overdue gas and electricity prices, market-based exchange rate adjustments, increase in interest rates, etc. to correct the macroeconomic imbalances.
The government also adopted prudent expenditure management and a contractionary monetary policy to compress the aggregate demand. To this effect, the State Bank of Pakistan raised the policy rate to 13.25% to arrest inflationary pressures.
It further clarified that the government is making efforts to control inflation by ensuring a smooth supply of commodities, checking undue profiteering & hoarding and monitoring prices both at the federal and provincial levels.
To address the issue of severe macroeconomic instability and to put the economy on the path of sustained growth and stability, tough immediate steps were required. The present government thus introduced a comprehensive set of economic and structural reforms. In this regard, the Finance Ministry has worked out a strategy to control inflationary pressures in the economy.
It further said that the government has discontinued borrowing from the State Bank of Pakistan which had an inflationary impact, and switched to commercial banks for borrowing which is less inflationary in nature. Similarly, the National Price Monitoring Committee (NPMC), in consultation with the provinces, is regularly monitoring the prices and supply of essential food and non-food items.
The Finance Division noted that on the expenditures side, the government is following austerity measures with a complete restriction on supplementary grants. This is helping control the aggregate demand to ease out the inflationary pressure in the country.