After remaining in power for a little more than a year, the beleaguered leaders of the PTI government must be thinking that it was easier to come to power than to run the country. The people are judging the government’s performance by the yardstick of its own promises and find that the performance is far below par.
The other day, a group of businessmen met Army Chief General Qamar Bajwa and apprised him of the difficulties they were facing in running their businesses. The fact that they met the Army Chief, instead of the Prime Minister, showed that they have given up hope of their problems being solved by the PTI government.
According to media reports, Pakistan’s leading business magnates met the Army Chief to record their concerns about the country’s sharply declining economy, and the government’s lack of response to the problems crippling the economic drivers of growth. The major theme of the business community was the PTI government’s inability to take action beyond verbal assurances and pledges. They pointed out that the actions of the government were not in line with its promises.
The delegation criticized the activities of the National Accountability Bureau (NAB) whose actions have created a sense of fear among public sector employees who are reluctant to take decisions to resolve their grievances. They also complained that the Federal Board of Revenue (FBR) was pushing the businesses to maximize their revenues, alongside the increasing costs of undertaking business activities, which have rendered corporate entities economically unviable. The businessmen stated that if remedial measures were not taken soon, their businesses would collapse leading to widespread unemployment. Exporters expressed fear that after losing the export market, they were likely to lose the domestic market to imports if the rates of energy and power are not reduced. They maintained that as opposed to eliminating corruption and losses in the sectors of energy and power, the government had transferred the burden onto the businesses.
The PTI came to power in August 2018, promising to build a “Naya Pakistan” by improving the state of the economy, providing jobs and affordable housing, and fighting corruption. One year has passed but the PTI government is far from fulfilling its major promises. The country’s gross domestic product (GDP) is down, fiscal deficit is at a three-decade-high, tax revenues have declined, key industries and agriculture have slowed down, and inflation is in double digits.
Lower growth results from a slowdown in the manufacturing sector, which fell 3.6 percent during the last fiscal year due to the higher cost of borrowing and production. The tight monetary and fiscal policies introduced by the PTI government have led to the contraction of large-scale manufacturing industries for the first time in 10 years. The government has also cut energy subsidies, making petroleum and diesel more expensive. In addition, the country’s central bank, the State Bank of Pakistan (SBP), increased the key monetary rate from 8.5 percent in October 2018 to 13.25 percent in July 2019. Needless to say, higher interest rates discourage private investments and reduce liquidity in the system, leading to lower consumption and GDP growth.
On the other hand, foreign direct investment inflows slumped last year by a massive 59 percent to US$73.4 million, indicating a fall in the investor sentiment for the Pakistani market. Fiscal deficit numbers released in July also paint a grim picture. Fiscal deficit, which is the difference between the government’s income and expenditure, was at a three-decade high of 8.9 percent when expressed as a percentage of GDP, going up from 6.6 percent the previous year. The GDP growth is headed southwards but the revenues continue to increase, which is a paradox, given the laws of economics. About 90pc of the increase in revenues has come from the existing taxpayers, and this taxation regime has increased the cost of business activities.
The PTI government started with a handicap. It inherited a high current account deficit from the previous PML-N government. Faced with a balance of payments crisis, it was forced to approach the IMF for a US$6 billion bailout package. However, the loan came with stringent conditions such as austerity measures, higher taxes, a tighter monetary policy, a depreciated rupee. All this restricted its ability to achieve the economic goals it had set for its first year.
However, it is important to note here that most of the unpopular fiscal policies implemented by the PTI government in the last one year were dictated by the IMF. Thus, many of Pakistan’s economic problems are structural in nature and cannot be overcome in one year. However, matters have been made worse by the way PTI government has handled the whole process. Instead of adopting a gradual approach, it went about the whole thing in a heavy-handed manner. The government did not show the sensitivity required of it. The right kind of policies could have softened the severity of the measures mandated by the IMF. But the government failed to exercise the kind of competence expected of it.