The economy’s fine

No, I am being serious

A gentleman asked me to state in one word my thoughts on Pakistan’s economy. “Great” was my response. But my response caused a twitter of negatives amongst others in the group. The truth is, I was neither joking nor being facetious. In the last year, despite having received no payments from the Coalition Support Fund and not taking part in the IMF program, the government has met its repayment obligations. And even after all this, reserves have increased slightly to remain higher than $16 billion. So, kudos to good fiscal management.

The government’s performance is criticised across the board and, regrettably, no one stands up to acknowledge the successes. They are limited, I won’t argue that. What is forgotten is that the government has been forced to provide over a thousand billion rupees as power subsidies. And FDI remains static due to negative perceptions. Despite this, the economy has continued to grow. Maybe not the kind of growth the government or the people would like to see, but under these very trying circumstances an upward trend must be met with applause.

Let’s be absolutely clear: Pakistan’s economy is not easy to manage. The demands of a developing country with a vast population are enormous. Added to this is the massive expense of fighting an apparently endless war on the borders and in cities. It would be enough to burst most treasuries. Resource mobilisation and deployment is crucial.

At this point, the other factor that accounts for my optimism is the downward trend in prices we are experiencing in major imports, petroleum and edible oil. A significant drop in edible oil prices (almost forty percent) and a substantial lowering in oil prices will have a positive impact on the import bill creating the fiscal space badly needed. The worst may not be completely over yet but there is finally a positive light visible at the end of the tunnel.

I was talking yesterday with a major player on the financial scene and he, too, expressed very positive views. He went to the extent of saying that the world’s economies may face pressure but for Pakistan that time is over. So the feel good factor appears to be returning. On the flip side, you have the permanent skeptics whose complaints never end.

These are those who have made so much money from Pakistan that the next ten generations don’t have to work. They flood the cocktail party scene, the “chattering classes”, complaining bitterly how it is impossible to work in this country.

With the budget due at the weekend, all ears and eyes are focused on ‘Q’ block. This is election year for a government that has been embroiled in issues that are typically not encountered. The fragility of the ties with the US would probably figure as the most significant. It is imperative in all aspects, including in financial terms, that a resolution is quickly found. Objectively viewed, both sides have valid points but the US having a bigger audience finds more support. This puts Pakistan in the proverbial ‘spot’ with the rest of the developing world especially those in the NATO coalition. So with sources ‘drying up’, resource review attains greater importance.

There is concern about the stagnant tax-to-GDP ratio. As far as the bureaucracy and its patrons are concerned, the 26% increase in revenue collection allows them to rest on their laurels. However, as the FM emphasises, after the 18th amendment Pakistan is a five-government country; thus there are, or should be, five resource mobilisers. So why are Lahore and Karachi not mobilising for an improvement in the ratio? There could be a potential uptick of 35% and impact the ratio positively. Is it lack of will or is it their psyche?

Ask them to think reform and they will go around in circles and come back to the same point: tax those that are already taxed. Fortunately, the FM does not subscribe to this line of thought. However, he still has not been able to work out two crucial aspects: First, the expansion of the tax net and second, the evasion by certain privileged sectors in collusion with authorities and stakeholders.

The economy is undoubtedly buoyant. A retail outlet in Karachi has a turnover of PKR 4 billion per annum. 75,000 prime designer garments are sold within 90 minutes of launch. There is a run on almost anything new. This is an encouraging trend that the government must support. But the government and the people must also benefit from government’s policies.

When a family buy-out runs into billions of dollars, the question asked is where did the money come from? From the business, of course! But did the business declare enough for these amounts to be kosher? That is the million-dollar question. When the owner of the business is richer than the business, it doesn’t take rocket science to figure out what’s happening.

The mind has focused and it has meaningfully delivered. It is time to take the heart into confidence and believe that real solutions not only exist but also can and must be achieved. That is when the response “Great” will be met with a nodding of heads rather than a flurry of negatives.

The writer can be contacted at [email protected].