The re­al­ity be­hind the fa­cade

The Pak Banker - - 4EDITORIAL - M Zi­aud­din

PUBLIC per­cep­tions and mar­ket sen­ti­ments do in­flu­ence the state of the global econ­omy as well as that of in­di­vid­ual na­tions. At times even hard sta­tis­tics and solid, of­fi­cial data are be­lied by such per­cep­tions and sen­ti­ments. In the case of Pak­istan, cur­rently the of­fi­cial claims of 'suc­cesses' on the eco­nomic front are be­ing chal­lenged by a num­ber of cred­i­ble in­de­pen­dent econ­o­mists who, hav­ing served as of­fi­cial eco­nomic man­agers in the re­cent past, seem to know what they are talk­ing about.

This is hap­pen­ing de­spite the fact that the of­fi­cial claims are be­ing backed by most mul­ti­lat­eral donors, in­clud­ing the IMF and the World Bank as well as in­ter­na­tional rat­ing agen­cies like Moody's, Stan­dard & Poor's, plus Forbes, the mag­a­zine of the rich.

The of­fi­cial data is re­ally up­lift­ing: GDP growth rates in the last two con­sec­u­tive years were recorded at a healthy four per cent and 4.2 per cent, re­spec­tively; fis­cal deficit in the same pe­riod was 5.5 per cent and five per cent re­spec­tively. The rate of in­fla­tion has tum­bled to 1.8 per cent in re­cent weeks and the for­eign ex­change re­serves have reached a record $19 bil­lion.

How­ever, in­de­pen­dent econ­o­mists dis- agree with the of­fi­cial GDP growth rates and place them at a lit­tle less than four per cent an­nu­ally for the last two con­sec­u­tive years. Fis­cal deficits have been recorded at eight per cent for 2013-14 and 8.5 per cent of GDP for 2014-2015. The markedly low rate of in­fla­tion is rightly at­trib­uted to the plunge in in­ter­na­tional com­mod­ity prices, led by oil prices. As ex­ports de­clined, for­eign ex­change re­serves are said to have been puffed up by bor­row­ings rather than earn­ings: a Euro bond of $2 bil­lion, a sukuk of $1 bil­lion, a Saudi gift of $1.5 bil­lion and a net IMF pay­ment of $1.5 bil­lion, com­bined. Since the UAE leads the sources of for­eign re­mit­tances, it is sus­pected that a good part of it is Pak­istan's own black money smug­gled to the Emi­rates and brought back as white in the shape of re­mit­tances. Ad­di­tion­ally, over $1.5 bil­lion was gen­er­ated through the pri­vati­sa­tion of prof­itable or­gan­i­sa­tions, like the HBL, the UBL, the ABL and the PPL. Bank in­ter­est rates are at their 40-year low­est, but only the gov­ern­ment is tak­ing full ad­van­tage of these low rates by cor­ner­ing most of the banks' liq­uid­ity for bud­getary sup­port, while leav­ing hardly any­thing for an al­ready in­vest­ment-shy pri­vate sec­tor.

One won­ders that if the IMF, the World Bank and Forbes are all so im­pressed by the progress made by Pak­istan's econ­omy in the last two years, then what is driv­ing the coun­try's own in­de­pen­dent econ­o­mists to the op­po­site cor­ner. Or, are they all only vent­ing their bile against a 'suc­cess' in which they did not play any part?

Per­haps, there is another ex­pla­na­tion - a po­lit­i­cal one. Per­haps those who seem to be 'im­pressed' by the so-called 'suc­cesses', are in fact, de­lib­er­ately cre­at­ing a pos­i­tive im­pres­sion of Pak­istan's econ­omy and thus re­as­sur­ing Is­lam­abad of con­tin­ued flows of con­ces­sional as­sis­tance in re­turn for an un­spo­ken 'strate­gic favour' - Pak­istan's ac­tive and mean­ing­ful co­op­er­a­tion in ar­rang­ing face-to-face meet­ings be­tween the rep­re­sen­ta­tives of the Afghan gov­ern­ment and the Afghan Tal­iban. In the past as well, Pak­istan had bought an eco­nomic bailout in re­turn for a 'strate­gic favour' asked by the US on be­half of In­dia. In the year 2000, when it was, per­haps, the most sanc­tioned coun­try af­ter Libya, Pak­istan was awarded an emer­gency IMF standby ar­range­ment (SBA) for agree­ing to the USspon­sored In­dia-Pak­istan peace talks that fi­nally led to the Agra Sum­mit in the mid­dle of 2001.

Be­cause of the sanc­tions, both the US and the UK, un­der their re­spec­tive laws, were obliged to op­pose the IMF Board meet­ing Pak­istan's ap­pli­ca­tion in June 2000 for a SBA for a pal­try $500 mil­lion. But the Board ap­proved the ap­pli­ca­tion, as the rep­re­sen­ta­tives of both the coun­tries in ques­tion ab­stained from the meet­ing.

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