Mixed Econ­omy

Enterprise - - Contents -

2015 saw a mixed eco­nomic pic­ture, as the Pak­istan govern­ment man­aged to bring sta­bil­ity by ex­clu­sively fo­cus­ing on in­di­ca­tors that could read­ily add to strength­en­ing the econ­omy, yet failed to de­liver in ar­eas crit­i­cal for plac­ing it on strong foot­ing.

De­spite giv­ing sta­bil­ity, it could not lay the foun­da­tion for sus­tain­able eco­nomic de­vel­op­ment. The poor per­for­mance on in­vest­ment, sav­ings and ex­ports front re­mained poor, deep­en­ing its de­pen­dence on for­eign lenders to run eco­nomic and fi­nan­cial affairs.


Sim­i­lar to 2014, the fed­eral govern­ment re­mained de­fen­sive in 2015 as a re­sult of not ful­fill­ing its com­mit­ments on achiev­ing spe­cific tar­gets un­der the $6.2 bil­lion In­ter­na­tional Mon­e­tary Fund (IMF) pro­gramme. It kept on run­ning the econ­omy by mak­ing monthly plans and in the process im­ple­mented poli­cies that suf­fo­cated growth, in­creased un­em­ploy­ment and in­come in­equal­ity.

Th­ese poli­cies also fur­ther deep­ened the stigma of a ‘pro-rich govern­ment’; it taxed the daily us­able goods while giv­ing sub­si­dies to sugar barons.

Fur­ther­more, to meet its tar­gets, the govern­ment re­sorted to an un­prece­dented level of tax­a­tion, af­fect­ing the poor and middle-in­come groups more than the rich.

On the last day of 2015, the govern­ment in­creased the rate of Gen­eral Sales Tax (GST) on diesel to 51%, which is used to run agri­cul­ture tube-wells and in pub­lic trans­port (high­est rate for any good).

Trans­parency in eco­nomic de­ci­sion-mak­ing was vis­i­bly lack­ing. The govern­ment did not make pub­lic its ne­go­ti­a­tions with Qatar for the $16 bil­lion Liq­ue­fied Nat­u­ral Gas deal. Ques­tions were also raised over the man­ner the govern­ment ap­proved road in­fra­struc­ture projects un­der the

China Pak­istan Eco­nomic Cor­ri­dor (CEPC).

Un­em­ploy­ment rate jumped to a 13-year high of 8.3 %. In­come in­equal­ity in­creased and the govern­ment again re­fused to re­lease poverty data, which is in­creas­ing day by day. In­vest­ments and sav­ings – the two fun­da­men­tals of strong econ­omy – were ig­nored. Fi­nance Min­is­ter Ishaq Dar rarely men­tioned th­ese two ar­eas in his speeches. Ex­ports could not pick de­spite the Gen­er­alised Sys­tem of Pref­er­ence (GSP) plus scheme.

The top most pri­or­i­ties of the govern­ment re­mained build­ing for­eign cur­rency re­serves, largely by bor­row­ings, and cur­tail­ing bud­get deficit by cut­ting de­vel­op­ment spend­ing and park­ing ex­penses out­side the bud­get.

As a re­sult, the coun­try’s to­tal for­eign cur­rency re­serves in­creased to his­tor­i­cal level of $21.1 bil­lion in­clud­ing $4.9 bil­lion that are in the pri­vate hands.

Ef­forts must be praised

The in­crease in for­eign re­serves would al­low the govern­ment to say adieu to the IMF in this year, pro­vid­ing much-needed space to take de­ci­sions ahead of the 2018 gen­eral elec­tions.

Even if IMF pre­ma­turely sus­pends the pro­gramme and other in­ter­na­tional lenders stop bud­getary sup­port loans, the govern­ment will have suf­fi­cient for­eign cur­rency re­serves to meet its in­ter­na­tional obli­ga­tions for the next two years. How­ever, Fi­nance Min­is­ter Ishaq Dar would like to avail at least one more IMF tranche of $500 mil­lion. The low crude oil prices in the in­ter­na­tional mar­ket and ap­pre­ci­a­tion of US dol­lar against other global cur­ren­cies helped the govern­ment build re­serves. On th­ese two ac­counts, the govern­ment saved $3 bil­lion to $4 bil­lion in the last year.

In 2015, the govern­ment also re­mained suc­cess­ful in sav­ing the IMF pro­gramme and took some tough de­ci­sions dur­ing the course of the year. How­ever, in the last cou­ple of months, its com­mit­ment to­wards struc­tural re­forms weak­ened, which might de­rail the pri­vati­sa­tion process in 2016.

On the fis­cal front, the govern­ment suc­cess­fully man­aged the bud­getary books to the sat­is­fac­tion of the IMF.

In­de­pen­dent econ­o­mists ex­pressed se­ri­ous reser­va­tions over the man­ner in which the Fi­nance Min­istry han­dled the books. They lev­elled al­le­ga­tions of fig­ure-fudg­ing. How­ever, IMF did not pay much heed to th­ese ac­cu­sa­tions, pre­fer­ring to look at the govern­ment with a ten­der heart.

Tax­a­tion again re­mained a weak area and the base could not be broad­ened. The govern­ment missed its bud­getary tax col­lec­tion tar­gets but the price of in­ef­fi­ciency was paid by the fel­low cit­i­zens in shape of in­creased bur­den of in­di­rect tax­a­tion.

It also gave an­other amnesty scheme for traders to whiten their black money.

Though the power sec­tor bleed­ing could not be stopped and the cir­cu­lar debt again piled up to Rs661 bil­lion, in­clud­ing ar­rears parked in a power hold­ing com­pany, the Min­istry of Wa­ter and Power did slightly im­prove bill col­lec­tion and marginally re­duced line losses.

Over­all, the $46-bil­lion China Pak­istan Eco­nomic Cor­ri­dor, Vi­sion 2025 that gave long-term plans and US-Pak­istan Knowl­edge Cor­ri­dor can be de­scribed as high points of the PML-N govern­ment in 2015.

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