Re­spond­ing to eco­nomic chal­lenges

Pakistan Observer - - OPINION - Ma­lik M Ashraf Email: ashrafazim2000@ya­hoo.com

WHILE it is hard to take an is­sue with the govern­ment claims that over the last three years the econ­omy has been re­vived and all the eco­nomic in­di­ca­tors re­flect pos­i­tive trends and that de­spite fail­ing to achieve the tar­gets set for fi­nan­cial year 2015-16, the GDP growth stood at 4.71% which is the high­est rate of growth in the last years, the neg­a­tive growth in agri­cul­ture sec­tor is quite wor­ri­some. Pak­istan is an agri­cul­tural coun­try and agri­cul­ture is the main­stay of our econ­omy. Equally both­er­some is de­cline in the ex­ports as com­pared with the pre­vi­ous year.

As re­vealed in the eco­nomic sur­vey, agri­cul­ture recorded neg­a­tive growth of 0.19% as com­pared to 2.53 % last year. This de­vel­op­ment is at­trib­ut­able to the fact that growth of crops de­clined by 6.25% though the sub-com­po­nents like Live­stock, forestry and fish­ing posted pos­i­tive growth of 3.63%, 8.84% and 3.25% re­spec­tively. The ma­jor con­tribut­ing fac­tor to the over­all dis­mal per­for­mance of the agri­cul­ture sec­tor ac­cord­ing to the Fi­nance Min­is­ter was 28% losses in the cot­ton crop that re­duced the GDP growth by 0.5%. The fac­tors that led to this sit­u­a­tion in­cluded higher in­ven­to­ries, de­clin­ing com­mod­ity prices and un­favourable weather con­di­tions. Agri­cul­ture pro­vides em­ploy­ment for 45% of the labour force, 70% of the pop­u­la­tion de­pends on it and it con­trib­ute 21% to the GDP. And above all it en­sures food se­cu­rity for the coun­try. That ad­e­quately ex­plains the im­por­tance of agri­cul­ture for our econ­omy.

In the back­drop of the fore­go­ing de­vel­op­ments, it is, how­ever, en­cour­ag­ing to note that the govern­ment has come up with a be­fit­ting re­sponse in the bud­get for 2016-17 to fix the aber­ra­tions in the two vi­tal sec­tors of the econ­omy which have un­der-per­formed. Tak­ing cog­nizance of the un­fold­ing sce­nario in the agri­cul­tural sec­tor, the govern­ment an­nounced a pack­age of Rs.341 bil­lion for farm­ers in March 2015 that in­cluded di­rect cash sup­port to the tune of Rs.40 bil­lion, Rs.20 bil­lion sub­sidy on urea, sub­sidy on im­port of urea to keep prices low and con­ces­sional tar­iff for agri­cul­ture tube wells. In the bud­get for 2016-17 fur­ther mea­sures have been an­nounced to boost the agri­cul­ture sec­tor and help the farmer com­mu­nity. The prices of bag of urea have been re­duced from Rs.1800 to Rs.1400. Sim­i­larly the prices of DAP per Kg have been brought down to Rs.2500 from Rs.2800. The sub­sidy on th­ese two items will amount to Rs.46 bil­lion which will be equally shared by the Fed­eral and Pro­vin­cial gov­ern­ments. Vol­ume of agri­cul­tural credit has been in­creased from Rs.600 bil­lion to Rs.700 bil­lion. Mark-up on loans ad­vanced to farm­ers by ZTBL, NBP and Bank of Pun­jab has been re­duced by 2%. A re­duc­tion of Rs3 per unit has been an­nounced for agri­cul­tural tube wells which will bur­den the na­tional ex­che­quer by Rs.27 bil­lion. Im­port duty on im­port of ma­chin­ery for daily, live­stock and poul­try sec­tors has been re­duced from 5% to 2%. Sales tax of 7% on pes­ti­cides and its in­gre­di­ents cur­rently in vogue has been abol­ished.

Ex­ports that stood at $20.5 bil­lion in the fi­nan­cial year 2012-13, came down to $18.2 dur­ing 2015-16 reg­is­ter­ing a de­cline of 11%. The rea­son given by the Fi­nance Min­is­ter was global de­cline in com­mod­ity prices. The ar­gu­ment given by the Fi­nance Min­is­ter car­ries some weight. Due to glob­al­iza­tion that has in­creased in­ter­de­pen­dence on and con­nec­tiv­ity with each other as well as made the coun­tries of the world part of the global eco­nomic and com­mer­cial sys­tem, any hic­cup on the international level does af­fect al­most all of them in vary­ing de­grees, de­pend­ing on the strength of the econ­omy and its abil­ity to ab­sorb the shock. The ef­fect though is more pro­nounced for de­vel­op­ing coun­tries like Pak­istan. Due to the de­cline in ex­ports trade deficit of Pak­istan, as per fig­ures is­sued by the State Bank, in­creased to $20.05 bil­lion as com­pared to $19.94 last year. Trade deficit is a very cru­cial eco­nomic in­di­ca­tor and grow­ing trade deficit can neg­a­tively im­pact the over­all eco­nomic sit­u­a­tion. In­creas­ing ex­ports and re­duc­ing im­ports are the ideal rem­edy to ad­dress the de­bil­i­tat­ing im­pact of trade deficit. The pre­ferred op­tion, how­ever, is to de­vise poli­cies that en­sure ex­port-led growth.

The de­ci­sion to con­tinue the scheme of draw­back on Lo­cal Taxes, re­duc­tion in mark-up rates on ex­port re­fi­nance fa­cil­ity, es­tab­lish­ment of Tech­nol­ogy Up-gra­da­tion Fund and zero-rat­ing of ex­port ori­ented sec­tors such as tex­tile, leather, sports goods, sur­gi­cal goods and car­pets, duty free im­port of ma­chin­ery and fi­nal­iza­tion of all the pend­ing cases of sales tax re­funds are very imag­i­na­tive and timely steps to re­vi­tal­ize and en­hance the ex­port po­ten­tial of the coun­try.

Man­ag­ing the econ­omy of a de­vel­op­ing coun­try like Pak­istan, no doubt is a very ar­du­ous and con­vo­luted re­spon­si­bil­ity due to a host of in­ter­nal and ex­ter­nal fac­tors. But it must be ad­mit­ted that the PML(N) govern­ment, par­tic­u­larly the Fi­nance Min­is­ter has been han­dling his re­spon­si­bil­ity with ut­most ded­i­ca­tion, fore­sight, vi­sion and sen­si­tiv­ity to the needs of stake­hold­ers in dif­fer­ent do­mains of the econ­omy. The macroe­co­nomic re­forms in­tro­duced to rein­vig­o­rate the econ­omy have in­deed pro­duced very en­cour­ag­ing re­sults. — The writer is free­lance columnist based in Islamabad.

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