Economic Dire Straits

Finally some home truths

The good news is that Prime Minister Nawaz Sharif, after a quadruple coronary bypass, is recovering satisfactorily at the London clinic on Harley Street. His daughter Maryam Nawaz – some say the presumptive heir to the throne — through her various tweets has claimed that he will be back home before Eid ul Fitar.

According to the PML-N trolls Sharif on his return will be an even more formidable foe for the opposition. He will be literally firing on all four cylinders, they claim.

It is, however, unlikely that Sharif will be back home so soon. His recovery should take over a month before he is allowed to travel by his doctors.

Nonetheless whenever the prime minister returns home, he is bound to face a long hot summer of the combined opposition onslaught against him. Imran Khan is in no mood to let go. He is planning to launch a movement on the issue of Panama leaks post Ramadan in July.

The issue of forming the TORs (terms of reference) remains deadlocked in the parliament. The hawks within the opposition –the Khan being in the forefront — would rather not have an agreement on the TORs.

They would be more comfortable, in the absence of a probe commission, to launch a movement to oust Sharif. The PTI chief knows that his strength lies in his formidable crowd gathering capacity second to none amongst the politicians.

According to the PML-N trolls Sharif on his return will be an even more formidable foe for the opposition. He will be literally firing on all four cylinders, they claim

Hence causing disruption on the streets remains his forte. Even the PPP, unlike the 2014 dharna, is not willing to play ball with Sharif despite the best efforts of emissaries like Maulana Fazlur Rehman.

However the state of the economy should give Sharifa different kind of heartache. What was well known and acknowledged by most independent economists is now official.

As expected the government, despite playing footsie with figures, has dismally failed to hide the stark reality that it has missed out on major growth targets during the current financial year. The economic survey released a day before the budget gives a mixed picture of the economy.

The Survey admits failures in vital sectors of the economy. It acknowledges fiscal deficit remaining within the stipulated target and the ensuing macro economic stability. Mr Dar deserves due credit here.

Inflation remained at an historical low, below six percent. No thanks to the government’s policies but owing primarily to a record drop in international oil prices.

The government also achieved its revenue targets under the stewardship of Haroon Akhtar Khan, the advisor on revenue inducted by Ishaq Dar. Nonetheless the tax-to-GDP remains stubbornly low. The emphasis remains on indirect taxation rather than direct taxes, as is amply evident from the budget for the next financial year.

The negative growth of 0.19 per cent in agriculture as a whole against the targeted 3.9 per cent only tells part of the story. It is blamed by government spokesmen, starting from the prime minister, on the collapse of international commodity prices. But notwithstanding fall in prices, with the exception of sugarcane, production of every agriculture produce has fallen.

Farmers recently were justifiably agitating on the streets of Lahore. While market prices of their products have collapsed the prices of inputs have gone up. Obviously the prime minister’s so called ‘kissan package’ has come too late and too little. It is simply too inadequate to pacify the farmer.

Pakistan still primarily remaining an agrarian economy, this does not auger well for the ruling elite. It is a shame that most of the parliamentarians belong to the rural constituencies. But they did not lift a finger for their constituents.

The downward slide in demand for consumer goods in the rural heartlands depresses overall demand for these products. The jobless farm workers will exacerbate urbanisation pressure.The cities on the other hand are no model of prosperity. The ensuing social unrest is thus a recipe for disaster.

According to the Survey the GDP growth rate during the year was 4.71 per cent against atarget of 5.5 per cent. Eminent economist Hafeez Pasha — who till recently was heading IPR (Institute of Policy Reforms) set up by former commerce minister, Hamayun Akhtar Khan — claims that even this figure has been deliberately fudged to hide the extent of failure of the government’s economic policies.

According to him the actual GDP growth rate is not more than three per cent. He has even made the audacious claim that out of eighteen vital sectors, growth in at least ten sectors has been exaggerated to achieve a higher growth figure.

Blaming the previous government for its real or perceived malfeasance worked for a while. Later it was claimed Imran Khan’s dharna in mid 2014 inexorably damaged the economy

 

Whatever the authenticity of the doctor’s claims, even going by figured released by the finance ministry, the next year’s GDP growth target is simply not achievable. Pakistan’s GDP growth rate dismally remains the lowest in the region.

In the 90’s Pakistan under Sharif was credited with opening up the economy and achieving a high growth rate. At the time the Indian economy, still shackled, was credited with a five per cent growth rate. The ‘Hindu growth rate’ was the term coined by economists to signify a perennially low growth.

Ironically, now the shoe is on the other foot. Pakistan is stuck with the ‘Hindu growth rate’ while the Indian economy is booming at a rate higher than seven per cent annually.

Despite record indebtedness and chronic decline in exports the PML-N leadership keeps on crowing about its economic achievements. A lot of hype has been created about record foreign exchange reserves of $21.6 billion.

However, the small print tells a different story. Islamabad during the year achieved the unsavoury distinction of record indebtedness. The bad news is being deliberately withheld from the people.

The actual foreign loans for the next financial year add up to $10 billion. But the budget presented in the National assembly shows a figure of $6 billion. $4 billion have been conveniently excluded by not taking into account any publicly guaranteed loans, previous borrowings to inflate foreign exchange reserves and foreign short-term commercial borrowings.

This is another glaring example of fudging figures in order to save face. In addition, there is talk of issuing another 750 million Eurobond. These will perhaps be used to pay for the maturity of Eurobond issued by Musharraf. It’s like throwing expensive money at old debt. Hardly prudent economics.

A lot of hype has been created around CPEC. No doubt a big plus. But while inflows from China more than doubled during the year they actually halved from the rest of the world.

Judging by the government’s economic performance the national budget for the year 2016-17 seems nothing more than a ‘gorakh dhanda’ (jugglery of words and figures). It is obvious that during full three years of its tenure the PML-N government has been long on talk and short on action.

Blaming the previous government for its real or perceived malfeasance worked for a while. Later it was claimed Imran Khan’s dharna in mid 2014 inexorably damaged the economy. But since then the government has had a clean run to pursue its policies.

Three years of their rule complete, the Sharifs need to do some introspection about their economic agenda and reshuffling their economic team. The strategy of building motorways, highways, metro trains and power projects is necessary as infrastructure projects. They might even fetch some votes for the PML-N government in the next elections.

Nonetheless, this is not a recipe for sustainable growth leading to economic take off. For that at least 6.5 percent GDP growth rate is essential. Unachievable by the government’s own admission.