FeaturedNationalVOLUME 15 ISSUE # 21

Widely missed targets

The Pakistan Economic Survey 2019-20 shows all fiscal targets were missed by a huge margin in the last fiscal year. However, instead of accepting the reality and flaws in its policies, the government has squarely blamed Covid-19 for its poor performance.

The survey paints a gloomy economy of the economy. Undoubtedly, the pandemic has played havoc with the Pakistan economy, like elsewhere in the world, but the government cannot blame it for all its failure. The government will have to accept that the economy had slowed down even before the onset of the pandemic. The period covers data of the first nine months of the last fiscal year, from July 2019 to March 2020, when the coronavirus had not struck the country. It means the government has no justification for its poor policies and governance.

The data released by the government presents a poor performance as all economic indicators have nosedived and the government blames Covid-19 for a loss of over Rs3 trillion to the national income. At least another 10 million people are expected to slip below the poverty line as a consequence of the coronavirus pandemic. “The Covid-19 is expected to have a negative impact on the Pakistan’s economy, and the number of people living below the poverty line may rise from the existing figure of 50 million to 60m,” reads the survey. The situation was also bleak before the pandemic.

Lockdowns and restrictions required to stem the spread of the coronavirus are expected to cause a loss of 1.4 million to 18.53 million jobs in the country. According to the Economic Survey 2019-20, in case limited restrictions are imposed, as many as 1.4m jobs will be lost, which is 2.2 per cent of the employed workforce.

Total debt and liabilities of the country rose by Rs2.597 trillion in the period from July 2019 to March 2020. The bulk of the increase came from government domestic debt, which rose by Rs1.746tr in the period. The remaining increase came from government’s external debt which rose by Rs603 billion. The total public debt has risen to 84.4pc of GDP by March 2020. Finance Adviser Dr Abdul Hafeez Shaikh put the ratio at 88pc after including the borrowing from the IMF in April. The figure was 74.2pc in the corresponding period last year.

The budget deficit is expected to exceed the target of 7.5 per cent of GDP and may go to 9.4pc of GDP owing to disruption in economic activity and increasing expenditure on public health and social safety net programs lessening the impact of Covid-19. The government has accepted that achieving revenue targets of both tax and non-tax segments would be challenging due to disruption in economic activity. The full impact of Covid-19 on the Federal Bureau of Revenue (FBR) collection is estimated at Rs899 billion for FY20. In the pre-Covid period, the fiscal deficit came down to 4pc of gross domestic product (GDP) during July-March FY20, as against 5.1pc in the correspondent period last year. Similarly, the primary balance posted a surplus of Rs194b (0.5pc of GDP) as against a deficit of Rs463b (1.2pc of GDP). The improvement in the fiscal account is largely attributed to higher provincial surplus and a sharp rise in non-tax revenues. Overall, total revenues posted an impressive growth that outpaced the rise in expenditures.

Total revenues jumped by 30.9pc during July-March FY20 despite a slowdown in economic activity and import compression, as against just 0.04pc growth in the same period of FY19. In absolute terms, they stood at Rs4.689 trillion (11.2pc of GDP) this year, up from Rs3.583tr (9.4pc of GDP) in the same period of FY19. Tax revenues rose to Rs3.594tr during 9MFY20, from Rs3.162tr, posting a jump of 13.7pc. Out of total tax collection, federal and provincial revenues grew by 13.9pc and 11.6pc, respectively during the period.

Within the total federal tax collection, the FBR accumulated Rs3.044tr (7.3pc of GDP) during July-March FY20, versus Rs2.704tr (7.1 pc of GDP) last year, representing a rise of 12.6pc. Non-tax revenues also witnessed a strong recovery during July-March against a decline of 16.7pc in the correspondent period last year. In absolute terms, they amounted to Rs1.095tr, as opposed to Rs421.6b and were primarily driven by a substantial rise in receipt of outstanding telecom licence renewal fees and the SBP profit.

On the spending side, total expenditure grew by 15.8pc to Rs6.376tr (15.3pc of GDP) as compared with Rs5.506tr (14.5pc of GDP) a year ago. Of it, current expenditure surged by 16.9pc to Rs5.611tr in nine months versus Rs4.798tr in FY19. The increase was primarily attributed to higher mark-up payments, grants for social spending and spending on social protection.

The only positive prospect is agriculture. There has been no significant impact of Covid-19 on the agriculture sector which, on the aggregate, recorded a remarkable growth of 2.67 per cent in 2019-20 compared to 0.58pc growth achieved last year. Positive growth was noted in all important crops except cotton and sugarcane. However, locusts damaged main crop production areas in Balochistan, Punjab and Sindh provinces. Initial assessment shows damage to over 115,000 hectares of crops.

Another encouraging sign for people is that annual inflation in the outgoing fiscal year eased to 10.7pc, down from the earlier projection of 11.8pc, with falling international commodity prices. The falling crude oil prices will further ease inflationary pressures and the government expects it to enter single-digit in the next fiscal year.

The government expects quick economic recovery when the spread of coronavirus slows down. It has set the growth of gross domestic product (GDP) at 2.1pc for the fiscal year 2020-21, which is against national and international estimates. The government has blamed the pandemic for its poor performance last year. One hopes the country will perform better when the pandemic passes. It is time the government reviewed and improved its policies and governance, because it will be left with no excuse for the next year.