Dire straits

  • And misplaced optimism


The good news is that the prime minister is somewhat aware of the bad news on the economic front. That is why every weekend he is meeting his economic team to take stock of the dire situation.

After a lapse of one year the PTI (Pakistan Tehreek-e-Insaf) has belatedly realised that in order to restart the stalled engine of growth, businessmen and industrialists ought to be brought on board. Hence the other day captains of business and industry were invited over by the prime minister to hear their side of the story.

Suddenly it has dawned upon the government that NAB (National Accountability Bureau) harassing businessmen and bureaucrats in the name of eradicating corruption is anathema to economic growth. That is why there are musings about amending NAB law to exclude businessmen from its gauntlet.

The incarcerated PPP co-chairperson Asif Ali Zardari recently claimed that NAB and a growing economy couldn’t go together. But the accountability watchdog chairman justice (Rtd) Javed Iqbal thinks otherwise.

Perhaps one arm of the state does not know what the other is doing? Or, simply put there is a method in this madness.

The very next morning after the prime minister met businessmen assuring them of an enabling environment, gas tycoon Iqbal Z Ahmed was picked up from his Lahore office in a rather dramatic fashion.

According to NAB he is guilty of laundering more than 100 billion rupees allegedly found in his bank account. As per the accountability watchdog’s norm we are still not privy to Mr. Ahmed’s side of the story.

True, the enigmatic LPG (liquefied petroleum gas) and LNG (liquefied natural gas) entrepreneur has been a beneficiary of virtually every government since the rule of general Ziaul Haq. But certainly, he is not a fool to keep that kind of laundered amount in his own bank account.

It is not only the NAB that is inhibiting investor confidence but the PTI government’s general approach towards governance as well

Nonetheless, what kind of message does this send to the rest of the business lot? While living in Pakistan they should beware of the midnight or early morning knock from NAB minions.

As per the new normal they could be put in the slammer and keys thrown away. The use of third-degree tactics can hardly instil confidence in the already demoralised business community.

The dire macroeconomic situation has been well encapsulated by the international rating agency, ‘Moody’s Investors Services’ in its periodic review of the country’s economy. According to the agency, “meagre foreign exchange reserves continue to face the brunt of external pressures.”

In other words despite claims that the economy is now on a sound footing, current account deficit is significantly down and exports are on the rise the bottom line is quite dismal. Moody’s correctly points out that the economy is taking a beating. This is quite evident from deteriorating macroeconomic indicators and our weak fiscal position.

The most worrisome is of course the budget deficit soaring to a record Rs3.45 trillion or 8.9 per cent of the GDP. According to Moody’s for the first time in 19 years Pakistan’s debt and liabilities have exceeded the size of its economy peaking to a record Rs40.2 trillion. The government however insists it is primarily owing to fiscal pressures generated by shielding the consumer from rising oil prices, devaluation of the rupee and confrontation with India.

Thankfully, the agency has maintained a ‘B3 negative’ rating for Pakistan. The present rating being bad enough but, a further downgrade would have been disastrous.

Interestingly a lot is made out of poor governance and economic mismanagement of the previous PML-N and PPP regimes. But Moody’s while acknowledging progress in most areas laments the country is lagging behind in regional competitiveness as compared to its South Asian peers. Even Bangladesh has soared ahead of us.

Of course, macroeconomic indicators hardly leave any room for optimism. But the microeconomic situation that impacts business, traders and the common man is equally worrisome.

The statistics division of the government perhaps to understate the true impact of double-digit inflation has changed its basic criteria of calculating increase in prices. The CPI (consumer price index) will now be calculated from base year 2016 instead of 2008. It will reflect a different price basket with emphasis changed to rural areas instead of urban.

Despite this jugglery, price statistics released on a year-to-year basis from August 2018 to 2019 do not paint a very rosy picture. To cite a few examples: sugar has soared by Rs20 and mutton by a whopping Rs84 a kilo. While two and a half KG of cooking oil has hiked by Rs82 within a year.

Coupled with this, a consistent downslide in aggregate demand is dragging the economy down. Car sales have dipped by a whopping 50 per cent and tractor sales have also perceptibly decreased within a year of PTI government.

Partly owing to slashing of PSDP (public sector development programme) and a similar downslide in the provinces; demand for cement and steel has also been negatively impacted. The adverse fallout on the upstream and downstream industries, coupled with contraction of a record 3.6 per cent in a year in large-scale manufacturing, is not hard to imagine.

In this backdrop an IMF mission is due on September 16. As clarified by the MOF (ministry of finance) this is not an SOS mission as claimed by a section of the media, but a routine visit. According to the ministry the IMF’s technical level talks will be held after completion of the first quarter of the EFF (Extended Fund Facility).

Meanwhile there is talk of revision of previously agreed targets in the corridors of the finance ministry. But the question that begs an answer is: why in the first place did our economic team agree to such benchmarks that at the very outset were patently unachievable.

Of course Chairman FBR (Federal Bureau of Revenue), Shabbar Zaidi deserves kudos for increasing the total number of tax filers by 69 per cent in the past one year of the PTI government. The reform agenda is on the right track, but reading the small print, tax-to-GDP ratio has actually declined nor tax collection targets achieved.

Some economists claim that the economic team in its anxiety to please the IMF; the Rupee is now undervalued by at least 10 per cent. Axiomatically the base interest rate is too high to make it worthwhile for prospective investors to invest. Nonetheless the SBP (State Bank of Pakistan) contends that the Rupee in free float and will balance out at its true value.

The FDI (foreign direct investment) has plunged by a whopping 59 per cent in one year – a nine-month low- is more bad news. It is clear as daylight that unless drastic measures are not put in place soon the proverbial will hit the fan in the next few months. It is not only the NAB that is inhibiting investor confidence but the PTI government’s general approach towards governance as well.

Instead of conducting a witch-hunt against the opposition it should bring it on board on common economic and foreign policy agendas. But for that to happen, charity begins at home for Khan.


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