NationalVolume 13 Issue # 22

A negative scorecard

What is the economic performance of the five-year tenure of the PML-N government? The official claim is that growth rose to 5.8 percent in the current year against a growth of 3.68 percent in 2013 while inflation rose by a mere 3.77 percent instead of 7.75 percent in 2018.The budget deficit declined from 8.2 percent in 2013, to a low of 5.8 percent in 2016-17. Pakistan, under the three-year (2013-16) International Monetary Fund programme, raised revenue considerably (from 2.5 trillion rupees in 2013 to 3.95 trillion rupees in the current year – a rise of 56 percent). Development expenditure was 5.1 percent of GDP in 2013 and in the first four years, it was lower at 4.9 percent, 4.2 percent and 4.5 percent; however, by 2017 it was slightly higher at 5.3 percent.  Private investment as a percentage of GDP increased from 9.8 percent in 2013 to 10.4 percent in 2014-15 down to 9.8 percent according to provisional estimates of 2017-18 verifying the country’s decline in the World Bank ranking in ease of doing business – from 110th place (out of 190 countries) in 2013 to 147th as per the latest report

But it is equally true that the PML-N government failed on many fronts.There is a consensus of opinion among economists that data manipulation with respect to the growth rate has been more acute during the five years of PML-N, relative to PPP-led coalition government’s five years. This is proved by the fact that the gap between Pakistan Bureau of Statistics data with that released by specific government ministries/credible industry data has kept widening in recent years.

Furthermore, the level of governance of PML-N has been worse than during the PPP-led coalition government. This is evident from the woeful inefficiency of public sector enterprises (PSEs). Privatisation, a manifesto promise by the PML-N, focused on sale of profit-making units and little or nothing was done to restructure and begin sale of loss-making units. During the last four years, inflationary pressure has been low. But it must be kept in mind that a lower rate of inflation has been due to the drastic decline in the international price of oil, from a high of over 140 dollars per barrel in June 2008, to a low of 20 dollars per barrel in January 2016.

In 2013 savings rate was 13.9 percent of GDP but it declined to 11.4 percent by 2017-18. As a result, the gap between savings and investment widened during the tenure of the PML-N government which accounts partly for the rise in government domestic debt from 9.5 trillion rupees in 2013, to over 16 trillion rupees this year (a rise of 68 percent).Debt was also used to enhance foreign exchange reserves and to mainly fund the massive rise in non-development expenditure – from the budgeted 2.6 trillion rupees in 2013 to 4.29 trillion rupees in the current year – a rise of 65 percent in just five years.

The export sector fared poorly in the last five years. Two policies of the Dar years account for a dip in exports – notably an overvalued rupee that made our exports uncompetitive and failure to clear refunds. While the Abbasi administration tried to correct the former through two depreciations yet economists are agreed that the rupee remains overvalued while refunds in excess of 200 billion rupees remain outstanding. Exports declined due to an overvalued rupee that made our exports uncompetitive. Imports rose from 41 billion dollars in 2014-15 to 48.6 billion dollars in 2016-17 and total imports reached 45 billion dollars by April this year (in spite of a decline in the international price of oil from a high of 140 dollars per barrel in 2008, to less than half that rate for the bulk of the PML-N’s tenure). Chinese Foreign Direct Investment as per the SBP is estimated at 934.8 million dollars in July-April 2017 and 1.4 billion dollars July-April 2018. This data appears to contradict the claim by the PML-N that CPEC inflows are under FDI. The PML-N government never uploaded data on CPEC projects which has raised serious questions about the nature of the agreements signed with China.

No doubt, the PML-N government has increased generation by 10,000MW but it failed to undertake a holistic assessment of the sector. The transmission system was not upgraded concurrently even though in 2012 the then Secretary Water and Power Ministry had warned that the transmission capacity of the network was limited to 15,000MW. This accounts for frequent tripping at present. The decision to locate some coal plants away from the source of coal is baffling as it would raise transport costs and have serious health implications. It seems that the power sector performance was not the focus of the PML-N, accounting for the circular debt rising to levels higher than what it inherited in 2013.

At present the government does not have funds to remove the financial bottlenecks in the sector – ranging from import of fuel to transmission of electricity.  Borrowing has been the order of the day which has raised the cost of electricity for households and industry/commercial units and has been another impediment in our export growth. All in all, it was sorry performance by PML-N in all sectors of the economy, especially with regard to the huge burden of foreign loans which threatens to shackle future economic growth.