The $46 billion CPEC will be a game changer for Pakistan. But it will remain a dream if economic targets are not achieved every year.
For a developing country like Pakistan, the economic constraints are forceful and make a deep impact on the welfare of the citizens as well as on the sovereignty of the nation. The fiscal window is narrow, the debt keeps ballooning, the informal economy becomes monumental and the unemployment figure becomes worrisome. The law and order situation is also threatening, and the corruption scenario is entering menacing proportions. The government is hard-pressed to fulfill its myriad obligations, external as well as domestic. Survivability primarily depends on external sources that further affect the country’s limited resource base.
It is natural, therefore, for the government hierarchy in Pakistan to promote stacked up targets to justify or project its roadmap towards economic prosperity. Targets are supposed to be goalposts and targets must be realistic. Chest-thumping targets are seldom attainable within a given timeline and thus, at the end of the year, when they go haywire, there is a concerted rush to spin doctor the ground realities. The Finance Minister is not Merlin the Magician, conjuring up far-out solutions or dipping into his hat to pull out the proverbial rabbit, in this case, revenue.
The usual initial comments of stakeholders after the Finance Minister presents the salient features of the Budget are “traditional,” “bureaucratic” and “IMF-dictated.” It is but normal for the Finance Minister to hype up the government’s great achievements and lay blame for any shortcomings or missed targets on extenuating circumstances or factors beyond its control, in effect, absolving the regime from accusations that the economy was not managed prudently.
Finance Minister Ishaq Dar, perhaps putting more trust in the capability of the Federal Board of Revenue officers rather than analyzing the global situation as well as domestic dynamics, went for an ambitious target while formulating his Budget presentation in June 2014. Relying on his financial acumen and the power of his office, he was confident that efforts to achieve his vision were doable and that the business environment was conducive and favorable. He probably had more faith in the performance of stock exchanges and the commercial banks. Notwithstanding his penchant for asserting himself as the Economic Czar, he presided over nearly all committees that formed part of the economic regime. His determination to go for the skies, despite the apparent and unforeseen obstacles and detours, were not, netnet, reciprocated by political forces, inefficient bureaucracy and those outside the tax net.
The reasons for non-attainment of the targets, as enumerated by Dar in his Budget speech in the National Assembly on June 5, 2015, gave him and the PML-N the alibi needed to extricate themselves from the missed targets. The prime accusation was the 126-days dharna in the heavily protected Red Zone in Islamabad, orchestrated by PTI chairman Imran Khan. According to Dar, as well as others in the government, the negative consequences of the prolonged sit-in resulted in significant losses to the economy and directly impacted the growth figures. The second reason was the devastation caused by floods that affected the overall economic picture. Dar also stated that the Army-led Operation Zarb-e-Azb against terrorists and extremists who were holed up around the Pakistan-Afghanistan border and in the mountains put immense pressure on the Treasury while the high cost of taking care of the IDPs (Internally Displaced Persons) further compounded the situation. Infrastructure shortages, especially electricity and gas, also struck a severe blow to the economy.
While these reasons have their demerits, the fact is that the intensity of at least three of the main reasons hit hard on the financial resources. Blaming the dharna as the prime cause for the economic downslide was, however, hard to fathom. The protest was, for all purposes, limited to the Red Zone where there is no direct economic activity. Industries were operating in Karachi, Lahore and other cities while ships made a beeline to discharge their cargo at both the ports. Operation Zarb-e-Azb gave hope to the citizens and instilled a semblance of confidence in trade and industry. The after-effects of the floods, though damaging, were managed by the concerned authorities, but infrastructure shortages imperiously jack-hammered the nation’s exports, resulting in an over
3% drop in export figures.
Did the government really go fast forward to achieve its targets? What was its contribution towards attaining the targets? A recap manifests the shortcomings in reaching the goalpost. For fiscal year 2015, the goal was set to achieve GDP growth of 5.1% ahead of the GDP growth of 4.1% achieved in fiscal year 2014 and 3.7% in fiscal year 2013. However, as per provisional figures, the government only managed to achieve 4.24% GDP growth in fiscal year 2015. During this period, the growth in the services sector (4.95%) outpaced the lackluster growth of the manufacturing sector (3.17%) and agriculture sector (2.88%). These figures reflect the lack of initiative more than other debilitating factors.
The performance of the bloated and wrapped-in-cocoon FBR (Federal Board of Revenue) shows another dismal scenario. The tax machinery may be able to achieve its three-time revised target of Rs 2.6 trillion this fiscal year, whereas during fiscal year 2014, the FBR could not even achieve the twice revised target of Rs 2.2 trillion. Yet, Dar was overoptimistic that with the newly laid-down measures, such as additional taxation, reduced subsidies, roping in non-filers, and accelerated economic activity, the FBR would collect nearly Rs 3.2 trillion.
For fiscal year 2015, the government had set the budget deficit target at 4.9% of GDP. However, it had reached 3.6% of GDP by the end of the 3rd quarter of fiscal year 2015 as against 3.2% of GDP in the same period last year and was expected to be around 5% of GDP by the end of fiscal year 2015. In the past years, the budget deficit was curtailed to 5.5% of GDP in fiscal year 2014 from previous 8.8% in fiscal year 2013. Inflation nosedived to an average of 4.8% in 10 months of fiscal year 2015 compared to 8.69% in the same period last year. But, again Dar managed to take credit for this even though it had more to do with the global prices.
The decline in current account deficit by 53% to $ 1.36 billion in July-April 2015 from $ 2.93 billion in same period last year paved the way for economic improvement. Pakistan’s overall balance of payment recorded a negative balance of $ 2.12 billion till April 2015 as compared to negative $ 3.8 billion in Fiscal Year 2014. Despite efforts being made by the Board of Investment, Foreign Direct Investment remained abysmal at $ 0.825 billion during the 10 months of fiscal year 2015 as against investment of $ 0.879 billion in the 10 months of fiscal year 2014, posting a decline of 6% instead of achieving the investment growth target of 7%-8%. Similarly, balance of trade mostly remained under pressure in the span of last five years as increased imports outpaced exports, making the trade deficit escalate to $ 13.85 billion during the 10 months of fiscal year 2015 as against $ 13.71 billion in the same period last year.
The positive news for Pakistan in the coming years is the China Pakistan Economic Corridor (CPEC). The original tag price of the project - $ 46 billion - is now being estimated to cross $52 billion after addition of new projects and various revisits to already decided projects. This bodes well for Pakistan. All stakeholders are now on board and any distraction from the mapped out game changing initiative would again compel whoever is the finance minister to keep chasing the macroeconomic targets. As President George Washington had remarked, “We must consult our means rather than our wishes.”