Missed economic targets
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.