NationalVolume 13 Issue # 11

Pakistan’s economy: Fake news

Well known economist and former Advisor to PM on Finance Dr Hafeez Pasha has once again refuted the government’s claim that Pakistan’s economy is moving in the right direction.  According to him, as long as investment and exports do not increase, the claim of improvement in the economy does not make any sense.

Recently speaking to the media, he said that Pakistan’s exports had declined during the last four years and stood at $20 billion as compared to Bangladesh’s $34 billion and India’s $300 billion. He urged the government to pay attention to rising unemployment as 30 percent graduates were without jobs, while textile and other small export industries were badly affected in Punjab. The government’s short term borrowing, especially from external commercial banking sector, has increased significantly and as a result net outflows have increased, jeopardizing our growth prospects.

Negative economic indicators are multiplying. Revenue collection has remained dismally poor despite a spike in indirect taxes, especially from petroleum products. Additionally, there has been a dramatic decline in non-tax revenue primarily because of a drop in the State Bank profit and CSF inflows. As a result, overall growth in revenue has been negative as compared to increased expenditure on account of interest payment on government debt. Figures released by the State Bank show that the government has been meeting the expenditure on defence, security as well as development by borrowing from domestic and foreign sources.

A short while ago, Policy Research Institute of Market Economy (PRIME), a public policy think tank,  which carries out studies and analyses of economic performance of the government vs. their manifestos, analysed the performance of  the government in three areas – policy developments, institutional reforms, and implementation. PRIME’s latest report presents a dismal picture of government performance against PML-N’s promises and claims.

The study reveals that that the government has not been able to live up to its manifesto claims as many macro indicators have worsened in comparison to 2013, the year it came to power. GDP growth rate has been an exception as it has increased from 3.7% in 2013 to 5.3% in 2017, though nowhere near their manifesto claim of 6.5%. Tax to GDP ratio has slipped from 60% to 58%, foreign currency reserves have deteriorated from $19 billion in 2013 to $12 billion in 2017, external debt has increased from $ 61 billion to 83 billion. These are serious negative trends that are going to hurt the growth of the economy in the long term. What has specially damaged the economy is the falling exports that have decreased from $ 24.5 billion in 2013 to $ 20.4 billion in 2017 resulting in a historic trade deficit gap widening from $ 2.4 billion in 2013 to $22.1 billion in 2017.
These hard facts have been taken from the government’s own sources, but PML-N stalwarts continue to deny their own published figures by claiming that Pakistan is well on its way to development. This denial is backed by heavy advertisements in the media that present a picture not supported by data published by the State Bank. Such false claims are frowned upon in more developed countries where  the voter is more informed and non-governmental organisations take on the government claims and educate the voter on the real picture. But in Pakistan due to low rate of literacy, political sloganeering passes unchallenged.

At another level, the government has dismally failed to initiate overdue structural reforms. According to the PRIME report, all major reform areas like state-owned enterprises, taxation and energy sectors are not even on the parliament table. State-owned enterprises are white elephants and a heavy drain on national resources. Taxation reforms have also been badly neglected.  New taxes and duties have been imposed but on the same old tax filers who are less than a million in a population of over200 million. The promise of broadening the tax net has had a negative impact as far as direct taxes are concerned. Instead, there has been an increase in indirect regressive taxes that are paid by the masses.

Energy reforms have also taken a back seat. Though coal power plants have been established, hydro power plants have neither been planned nor facilitated in the provinces. Solar power projects were initiated according to the plan but unfortunately as energy reforms did not take place, the Quaid e Azam solar power project turned out to be a financial and operational disaster. According to the latest reports, it was being sold out to some private company.

The PRIME Report not only talks about quantitative economic facts but also takes into account qualitative aspects of governance relating to government expenditures and the decision making process. The promise of eliminating VIP culture and carrying out an austerity drive has vanished into thin air. The report says, in fact, the VIP culture has flourished more under the PML-N government. Similarly, the autonomous decision making has been a big failure as regulatory institutions like NEPRA, OGRA, etc., instead of being strengthened, have been brought under a centralized control system. This has made the system less transparent than before.

The basic failure is lack of better governance. Political favourites and cronies have been put in charge of vital sectors of the economy and they have made a mess of everything. PIA is a pertinent example of mishandling and mismanagement. The four years of government of PML-N are replete with scant regard to parliamentary norms, laws, and even orders of the court. It is this selective and arbitrary use of democracy that has created the current economic and political chaos.

There is no doubt that that the China Pakistan Economic Corridor (CPEC) is a game changer but everything depends upon its implementation whose speed is very slow. As per State Bank figures, only $500 million worth of imports under CPEC took place during the first six months of the current year. The government has so far released only one-third of the $800 million Public Sector Development Programme (PSDP), while total expenditure has not been more than 25 percent. Unless the government gives priority to CPEC through quicker and higher allocation of funds, its potential cannot be fully realized.

However, the silver lining is that through the media, especially social media, the understanding of what real democracy is all about has significantly increased. As the public becomes more aware and is able to see the difference between economic facts and fiction, the rulers will be gradually forced to mend their ways.