The economic outlook of the country
Two different reports, one by the State Bank of Pakistan (SBP) and the other by the Federal Board of Revenue (FBR), bring to light the state of Pakistan’s economy and how it has been badly managed by none other than the custodians of our economic policies: the politicians. First the good thing: the economy saw a modest raise of 0.7 percent in GDP in the FY12 compared to the FY11. Though the growth seems to be only mild, it translates into a much positive outlook of economy considering the internal and external turmoil the country was facing, excessive government borrowings, depreciation in rupee’s value, current account deficit and inflation.
What’s not so good about the state of economy is that the GDP growth rate fell 0.5 percent short of its target; fiscal deficit of 8.5 percent which SBP has termed unsustainable; public debt-to-GCP ratio of 62.6 percent, leading to a debt trap the country might find impossible to come out of; weak financial position of public sector enterprises (PSEs) with direct support amounting to Rs 33.8 billion; subsidies of Rs 391 billion to PSEs; a weak investment-to-GDP ratio of 12.5 percent; and country’s domestic debt which increased 27 percent year-on-year to Rs 1.6 trillion.
Though not much of a rosy picture that our economy appears to be in, barring three counts it is not as bad as it was expected to be. First, excessive internal borrowings, both in the commercial and government sector boosted consumption and thus drove forward the economy but at the expense of an increased fiscal deficit. Second, subsidies offered to PSEs proved a huge burden on the fragile economy which if discounted restrict the fiscal deficit to 6 percent, a much more manageable level.
Thirdly, – and this is where it gets tricky and slippery – the government offered more than Rs719bn in tax exemptions, through statutory regulatory orders (SROs), in between 2008 and 2012, Rs115bn more than what it had taken from the IMF under a loan programme. These exemptions have sent the economy in a downward spiral instead of an upward boost as was expected. State Minister for Finance Saleem H Mandviwalla said in the Upper House that the exemptions were a continuation of the policy of previous governments, adding that the SROs were issued to encourage certain sectors like textile. His unjustified defence of an unfair policy fails to point out that almost 84 percent of tariff and duty was exempted or reduced for the benefit of the lobbies through these SROs.
What the country needs right now is abolition of subsidies, discontinuation of SORs, widening of tax net and implementation of RGST among other changes in the current tax regimen. Unless we do so, a small group of people with vested interests will keep bungling the economy at the cost of the people at large.
