FeaturedNationalVOLUME 18 ISSUE # 30

Missed Targets, Worsening Crisis

The latest Economic Survey of Pakistan for the fiscal year 2022-23 reveals a bleak economic scenario with missed targets and a deepening crisis. Despite the government’s attempts to shift blame onto previous administrations and external factors, the survey highlights the widening macroeconomic imbalances and the failure to address crucial challenges.

Based on the latest Economic Survey of Pakistan, the government failed to meet its targets in the previous fiscal year. However, instead of taking responsibility, the government blamed the previous administration, as well as national and international factors, for the economic failure. Pakistan’s economy experienced stagflation, characterized by a 0.3% economic growth rate combined with a high inflation rate of 38% during the last fiscal year. Unfortunately, there are no indications of an early recovery, which means that the common people will continue to suffer from high prices, job losses, and decreased income.

As expected, the government attributed the current severe economic crisis, characterized by the failure to achieve annual targets and significant macroeconomic imbalances, to the policies of the previous administration, the devastating floods in the summer of 2022, supply disruptions caused by the Russia-Ukraine war, political uncertainty, and the delay in the resumption of the International Monetary Fund (IMF) programme. However, the Economic Survey 2022-23 fails to acknowledge the widening shortfall in annual targets and imbalances since the PTI administration fell on April 9, 2022. This concerning trend has gained momentum since September 27, when Ishaq Dar took oath as the federal finance minister for the fourth time.

The data presented in the Economic Survey 2022-23 is even more disconnected from the current realities compared to previous years. This is because the prevailing economic crisis has clearly worsened since March 2023, which was the cut-off month for data inclusion in the survey. By shifting the blame to policies from 14 months ago, the government’s customary approach, a re-evaluation of five major economic indicators is necessary.

The core inflation figure presented to the media averaged 18%. However, data from the Pakistan Bureau of Statistics reveals that in May, urban inflation was 20% and rural inflation was 26.9%, resulting in an average of 23.45% inflation. In April, the average inflation was 22.2%, and in March, it was 20.85%. Despite efforts to control the external value of the rupee, the consumer price index reached 38% in May, 36.4% in April, 35.4% in March, and 31.5% in February. This represents a steady increase from the 23.2% inflation inherited in September 2022, compared to 12.7% in February 2022 (before the implementation of the PTI administration’s relief package without proper funding).

There is also a discrepancy between the reported $30 billion losses attributed to floods and the claimed GDP growth rate of 0.29% in the country. The claim of 1.5% growth in agriculture this year contradicts the 2.9% contraction in the industrial sector. The contraction in the industrial sector is likely understated, as large-scale manufacturing experienced negative growth of 8.1% from July to April this year, with a staggering negative growth of 25% in March (which is expected to have worsened since then), according to the Economic Update and Outlook May 2023.

The Survey claims that Pakistan reached its highest-ever public debt of 49.2 trillion rupees in June 2022. However, this claim ignores the fact that the domestic debt stood at 28.07 trillion rupees at the end of March 2022 and increased to 37.24 trillion rupees by the end of April 2023. This represents an unprecedented 33% increase in just ten months and is a significant factor contributing to inflation.

In March 2022, Pakistan’s external debt stood at $129.18 billion, but it decreased to $125.7 billion by the end of March this year. This decline can be attributed to the pending IMF ninth review. Without the completion of this review, multilateral and bilateral lenders do not feel confident about extending loans to Pakistan, which has contributed to the decline in external debt.

Regarding the energy sector circular debt, the Economic Survey claims that it was contained at Rs. 2.5 trillion in June 2022. However, in August of the previous year, Minister for Power Khurram Dastgir informed the Senate that circular debt of Rs. 214 billion had been retired, and an additional Rs. 86 billion was subsequently paid off. This retirement of circular debt required borrowing or providing sovereign guarantees, leading to increased interest payments through higher tariffs imposed on consumers.

The report also states that import compression was implemented to prevent a drain on the dwindling foreign exchange reserves. However, it fails to mention several critical points. The reserves continued to decline from $10.08 billion on April 8, 2022, to $4.09 billion on May 26, 2023. Currency manipulation since October of the previous year, with a brief period of abandonment from January to early March, resulted in a significant reduction in remittance inflows. This reduction amounted to $3.4 billion from July to April of the current year compared to the previous year, which has been a major contributing factor to the declining reserves. Merchandise trade deficit contracted by around $10 billion as imports sharply declined from a negative $39.272 billion from July to April 2022 to a negative $23.7 billion from July to April 2023, as reported by the Pakistan Bureau of Statistics. However, it is deeply concerning that the trade imbalance is once again increasing, rising from a negative $25.791 billion from July to May 2023, compared to a negative $23.7 billion from July to April 2023. The current account deficit has significantly decreased in the first ten months of the year, going from a negative $13.7 billion last year to a negative $3.25 billion in the same period of the current year.

These factors have contributed to a remarkable reduction in new borrowing, a crucial component of the current account balance. From July to April 2022, new borrowing amounted to $13.472 billion, whereas in the comparable period of 2023, it decreased to $2.9 billion, as reported by the State Bank of Pakistan website.

The Economic Survey 2022-23 of Pakistan paints a grim picture of missed targets and a deepening economic crisis. While the government has tried to attribute the failures to external factors and policies of previous administrations, it is clear that the current administration must take responsibility for the worsening situation. The discrepancy between the reported data and ground realities, particularly concerning inflation, GDP growth, public debt, and declining reserves, calls for a thorough re-evaluation of economic policies. Urgent measures are needed to address the widening macroeconomic imbalances and alleviate the burden faced by the common people who continue to suffer from high prices, job losses, and decreased income.