Flawed economic model resulting in repeated crisis: PEW

Exports through subsidies and packages a wrong approach
Export boom is always followed by inflation, currency depreciation
Interest rate hike termed insufficient to contain slide of rupee

The Pakistan Economy Watch (PEW) on Tuesday said Pakistan’s economic model is flawed and full of contradictions but the policymakers prefer shortcuts over sustainable development.

The policy to boost exports through subsidies is wrong as boosting exports require consistent policies, improved industrial investment and a focus on new technologies, it said.

Whenever the government has tried to boost exports artificially, it has resulted in trade deficit, inflation, exchange rate erosion, increased value of dollar, and mini-budget, said Dr. Murtaza Mughal, President PEW.

He said that sometimes mini-budgets fail to deliver, leading the government to seek loans from the IMF and other sources.

He said that repeated failed experiments have failed to push the policymakers to design an improved and sustainable economic and export model.

Dr Murtaza Mughal said that the current government inherited a trade deficit of 37.6 billion dollars which was reduced to 23.3 billion dollars in two years b ut now the trade deficit of July and August has jumped to 7.5 billion dollars which will set a new record if not controlled.

Dr. Mughal said that the policy rate hike by 0.25 percent by the central bank is insufficient as it will not stop the fall of rupee which is becoming as worthless as a tissue paper.

The SBP should have increased interest rates by one percent to increase it gradually to improve the economic situation, he said.

In: Pakistan Economy WatchAuthor: pakistaneconomywatch