- Alarming capital flight
The 20pc year-on-year drop in FDI last month, despite a CPEC fuelled 2.4pc expansion over Jul-Apr (y-o-y), ought to ring alarm bells in the finance ministry as well as the state bank. Yet, with Miftah sweet talking all the way to the election, all one gets to hear is how mega projects have and motorways have unleashed an economic revolution, resulting in record growth. The truth, however, is that because of our inability to breathe any life into exports, while also failing to stimulate tax earnings, we have a chronic revenue problem and our growth trajectory is among the weakest in the region.
News reports that Kharif crops may face a drought like situation, therefore, have come at a very bad time. Any dip in agriculture not only directly affects subsistence and employment of a large majority of the population but, considering the makeup of our agri-based exports industry, also brings down revenue from commerce. Nobody has forgotten, of course – except perhaps the top leadership of the ruling party – that the fiscal deficit at this point is the highest in our history. And for all the roads and power plants that successive governments have built, nobody has ever been able to improve indigenous earnings through exports or taxes.
Also, our addiction to debt, even for the day-to-day functioning of the government, has now brought us to the position where heavy repayments are due. Failure, of course, will mean threat of default sooner or later. Yet there is no serious, institutional effort to streamline revenue. All we have shown, so far, is how good we are at triggering capital flight – from the real economy and capital market. It was our political logjam, after all, that made almost everybody pack up and leave the equity market, turning it from the best regional performer in 2016 to the worst in the whole world in 2017. And the same political environment is now responsible for the FDI flight in April. A very dark future awaits Pakistan on the economic front unless urgent steps are taken now.
