New economic thinking and imperative pragmatic policies | Print edition

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Economic hardship reaching crisis proportions is clear evidence that government policies have failed. Some commentators have said that we are in a difficult situation which can lead to situations like in Myanmar, Argentina or Lebanon. Fitch Ratings lowered the economy to a cc- level, close to insolvency.

Crisis recognition

Recognizing the problem and the need for economic reforms is the first step towards resolving multi-dimensional crises. Fortunately, there has been recognition of these recent and therefore important policy changes, such as with organic fertilizers.

Fresh look

A fresh look at economic policy failures and the adoption of pragmatic monetary, fiscal, agricultural, trade and other policies are essential for economic stabilization, economic recovery and growth.

Rice and fertilizer imports

The recent decision to allow the free importation of rice and chemical tea fertilizers is a blatant admission of the madness of the sudden switch to organic farming, which the scientific community had warned against and farmers were protesting.

Alternative economic policies and NMT

Likewise, the undefined alternative economic policies of the government and the new monetary theory (NMT) pursued by the government have led to unprecedented inflation, a huge budget deficit, large trade and balance of payments deficits, depletion of foreign exchange reserves and currency depreciation. There is no doubt that external factors such as rising oil prices have had a negative impact on the economy.

Time to change

The government’s alternative economic policies and its monetary and trade policies have driven the country into a serious economic crisis. Clearly, the time has come to take a fresh look at these policies and embark on reforms that would solve the country’s pressing problems.

A fresh look and a reversal of so-called alternative economic policies and the abandonment of the new monetary theory are imperative. Foreign aid from any side coupled with economic reforms is urgent and imperative.

Budget 2022

The 2022 budget, which is due to be presented on November 12, is an opportunity to break with recent policies and provide a pragmatic framework for economic policy.

This would include a more selective restriction on imports, liberalization of trade, realistic exchange and interest rate policies, and gradual implementation of organic farming to a limited extent, as in most countries. Fiscal consolidation is undoubtedly vital to achieving economic stability, but difficult and painful to achieve, but essential.

Economic crisis

The current economic crisis has many dimensions. The most important problem has been the severe shortage of foreign currency. The country’s reserves fell to $ 2.5 billion by the end of September. The depreciation of foreign currencies has led to unavailability of foreign currencies for essential imports due to a large margin between official and unofficial or black market rates.

Shortages of food and other essentials were the result. These are symptomatic of the critical shortage of foreign currency. The depreciation of the rupee and the reduction or elimination of the large margin between administered and market exchange rates which should be reduced and, if possible, eliminated are among the necessary changes.

Budget deficit

Less recognized, but the underlying problems are the increasing budget deficit and monetary expansion. The folly of the recklessly large expansion of the money supply justified by the government and the central bank by its plea for the new monetary theory has proven to be catastrophic. This led to inflation and the weakening of the currency.

Predicted

This has been repeatedly emphasized by economists, but stubbornly pursued by government economic advisers to create inflation and increased pressure on the balance of payments. This has had widespread economic ramifications and repercussions. Fiscal and monetary policy reforms are essential to stabilize the economy.

Triple problems

The threefold problems of reducing the trade deficit, consolidating public finances and reducing monetary expansion and inflationary pressures require policy reforms. Continuation of current policies would worsen the crises and lead the country to disaster.

Growing trade deficit

Despite tight import controls, the trade deficit widened in the first seven months of this year to reach US $ 4.9 billion from US $ 3.5 billion, an increase of up to 40 percent. cent compared to the same period last year. Based on this trend, the projected trade deficit could exceed ten billion US dollars for 2021.

Imports and Exports

What is surprising about this year’s trade performance is that the widening trade deficit was caused by increased imports despite increased import controls. This clearly demonstrates that the country’s trade imbalance cannot be resolved through import controls. As discussed in last Sunday’s column, the country’s future lies in a liberalized trade regime that increases the country’s exports.

Export growth

Despite the constraints posed by COVID-19 and import restrictions, exports increased 24% to US $ 6.9 billion in the first seven months. Agricultural and manufactured exports increased.

In addition, exports exceeded US $ 1 billion in June, July and August, with export loan expectations exceeding the export target of US $ 12 billion this year.

Balance of payments

With remittances showing a decline in recent months, low tourism receipts and net capital outflows, the balance of payments deficit is expected to be around five to six billion dollars.

In the first seven months of this year, the balance of payments deficit was $ 2.75 billion. Perhaps foreign aid and currency swaps would ease the situation, but not solve the currency crisis.

Conclusion

We may be able to overcome the critical difficulties in foreign finances with the help of foreign countries and multilateral organizations. However, the need at the moment is to recognize that the policies followed have been at best inappropriate and at worst flawed.

Reversing the wrong policies and adopting comprehensive economic reforms are the only ways to stabilize the economy and put it on the path to economic recovery. Fiscal, monetary and trade reforms are imperative. Are we on the threshold of political reforms?

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