Chas­ing Dreams

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.

Southasia - - CONTENTS - By Ma­jyd Aziz The writer is a for­mer Pres­i­dent of the Karachi Cham­ber of Com­merce.

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.”

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