Missed eco­nomic tar­gets

Pakistan Observer - - EDITORIALS & COMMENTS - Mo­ham­mad Jamil Email: mjamil1938@hot­mail.com

MIN­IS­TER for Fi­nance Ishaq Dar on Thurs­day un­veiled the Pak­istan Eco­nomic Sur­vey for the fis­cal year 2015-16, in­di­cat­ing missed tar­get of the GDP growth rate at 4.71% against tar­get of 5.5%. How­ever, the Min­is­ter at­trib­uted poor per­for­mance of the agri­cul­ture sec­tor to missed GDP growth rate tar­get. He un­der­lined that de­crease in cot­ton crop pro­duc­tion up to 28% was a ma­jor set­back for the GDP growth rate. The Min­is­ter said the in­fla­tion re­mained un­der con­trol as govern­ment pur­sued a firm mon­e­tary pol­icy lead­ing to lower spend­ing/de­mand and higher sav­ings. The govern­ment had fixed the tar­get to col­lect Rs 3.4 tril­lion, but it ac­tu­ally col­lected 2.3 tril­lion – an­other missed tar­get. Ex­ports went down by $2.3 bil­lion, as ex­ports were recorded $15.6 bil­lion dur­ing the first nine months of the cur­rent fis­cal year against pre­vi­ous year’s ex­ports of $ 17.9 bil­lion dur­ing the same pe­riod.

If this trend con­tin­ues, the to­tal ex­ports from July 2015 to 30th June 2016 would be $20.75 bil­lion. Im­ports dur­ing the first nine months of the cur­rent fis­cal year have been recorded as 32.50 bn, and by ad­ding the next three months’ pro­jected im­ports of $10.25, the to­tal im­ports for the year would be $42.75 bn. It means that there would be trade deficit of $22 bn; and with Pak­istani ex­pa­tri­ates’ re­mit­tances of $19 bn. dur­ing the fis­cal year, there would be cur­rent ac­count deficit of $3 bn. This is an alarm­ing sit­u­a­tion be­cause this deficit would have to be met by tak­ing fur­ther for­eign loans. There­fore, the for­eign re­serves of $21 bil­lion are of no con­se­quence when al­ready the for­eign debt is around $70 bil­lion. The govern­ment should fo­cus on in­creas­ing pro­duc­tion and ex­ports, other­wise Pak­istan would be­come de­faulter one day.

Dur­ing the last 69 years, ex­cept only twice - once in 1950s at the time of Korean War boom and sec­ond time in 1973 - Pak­istan has had al­ways cur­rent ac­count deficit, and had to fall back upon the IMF or loans and grants from other coun­tries. To meet fis­cal deficit, the govern­ment had to bor­row from the banks to meet the short­fall. Any­how, the suc­cess of any plan­ning de­pends on the ex­tent to which it con­trib­utes to­wards the living stan­dards of the peo­ple. The prices of util­i­ties and ever-ris­ing prices of es­sen­tial items erode the real in­come of the salaried and fixed in­come groups. The salaries of the govern­ment em­ploy­ees are in­creased, but the in­crease is not com­men­su­rate with the rate of in­fla­tion. Sec­ondly, lack of em­ploy­ment op­por­tu­ni­ties is the rea­son for en­gen­der­ing poverty. Thus the govern­ment must fo­cus on cre­at­ing job op­por­tu­ni­ties for the un­em­ployed.

One can only hope that the govern­ment would give real re­lief to the masses, be­cause what­ever it gives in the form of in­crease in salaries, it takes away in the form of in­crease in in­di­rect taxes. One can­not say with con­fi­dence that the present rate of in­fla­tion would be sus­tain­able, as the govern­ment is plan­ning to en­hance gas and elec­tric­ity tar­iff, which will re­sult an in­crease in the pro­duc­tion cost of in­dus­tries caus­ing an in­crease in the gen­eral price level. It means that our in­dus­try won’t be able to com­pete in the international mar­ket, which will re­sult in fur­ther de­cline in ex­ports. The govern­ment should take mea­sures to in­crease power gen­er­a­tion to over­come load shed­ding, and should not in­crease elec­tric­ity tar­iff to keep wheels of the in­dus­try mov­ing. Un­for­tu­nately, even with the sav­ings of $ 2 to 3 bn on the im­port bill of petroleum prod­ucts, the trade deficit is in­creas­ing.

Like other coun­tries of Asia, Africa and Latin Amer­ica, Pak­istan also started de­vel­op­ment plans in 1950 and dur­ing five decades about eight plans were made. But the plan­ners had a flawed per­cep­tion that if a lot of wealth was gen­er­ated at the top, the masses would au­to­mat­i­cally ben­e­fit from the ‘trickle-down’ ef­fect. How­ever, ev­i­dence sug­gests that best of eco­nomic plans can­not suc­ceed as long as hu­man be­ings are treated as mere sta­tis­ti­cal num­bers. The most se­ri­ous as­pect of our dire eco­nomic sit­u­a­tion is the grow­ing pub­lic debt, which on one hand lim­its the ca­pac­ity to build strong de­fence and on the other lim­its fis­cal space to in­vest in hu­man de­vel­op­ment and in­fra­struc­ture. The threats faced by Pak­istan have to be un­der­stood in the light of fast chang­ing re­gional and international sit­u­a­tion, which add ur­gency to re­vive the econ­omy so that ad­e­quate re­sources could be al­lo­cated to counter them.

It is un­for­tu­nate that de­spite be­ing a re­source­ful coun­try, Pak­istan has pub­lic debt more than 60 per cent of the GDP, which in­cludes a for­eign debt of more than $ 65 bn. The ques­tion is how Pak­istan has piled up such a huge debt; and sec­ondly how it would be able to man­age when the pay­ments of in­stal­ment and in­ter­est on the ad­di­tional loans would start from the next year. Our rulers had the pen­chant for for­eign di­rect in­vest­ment, but they did not re­al­ize that when the ex­ist­ing in­dus­try was not run­ning in full ca­pac­ity due to power out­ages, gas short­ages and de­te­ri­o­rat­ing law and or­der sit­u­a­tion, and when lo­cal en­trepreneurs are not will­ing to in­vest, how could they ex­pect that for­eign in­vestors would in­vest? The prob­lem is that our rulers have to fol­low the IMF dic­tates for in­creas­ing the rates of util­i­ties and pri­va­ti­za­tion of na­tional as­sets.

But that proved as recipe for dis­as­ter. They should re­mem­ber that with in­crease in port­fo­lio in­vest­ment in stock ex­change by for­eign in­vestors, and the pay­ment of div­i­dends and prof­its on their in­vest­ment in in­dus­try, the re­sult would be a mas­sive out­flow of for­eign ex­change in fu­ture, which is al­ready tak­ing the toll. In fact, for in­vest­ment it is im­per­a­tive to have sav­ings to start with, which are con­sid­ered as nuts and bolts of de­vel­op­ment. The present rate of sav­ings to GDP is around 14 per cent and in­vest­ment ra­tio to GDP is ap­prox­i­mately 18 per cent, which are lower if com­pared with the de­vel­op­ing coun­tries and emerg­ing economies. It should be borne in mind that in­fla­tion hin­ders the ca­pac­ity to save, as it erodes the in­comes of the peo­ple, es­pe­cially salaried class and fixed in­come groups. The rul­ing and op­po­si­tion par­ties should put their heads to­gether to ex­tri­cate Pak­istan from dis­mal eco­nomic sit­u­a­tion. —The writer is a se­nior jour­nal­ist based in La­hore.

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