How ironic it is that most of the reputed economists of the country have either emigrated to greener pastures or prefer to remain mum to avoid controversies or some kind of backlash. However, Dr Hafeez Pasha, who is working in Pakistan these days, usually does not mince words about the tall claims of the government. Speaking at the Six-monthly Economic Review 2014-15 of the Institute of Policy Reforms (IPR), he asserted that there was no ground for optimism about the claims of economic recovery in Pakistan as the much-touted reforms had not been up to the mark. Maintaining that fiscal deficit during the first seven months stood at 3.4 percent of GDP as against the target of 4.9 percent for the entire year, he said that fiscal deficit during the current fiscal year was going to touch 6.0 percent of GDP despite 15 percent reduction in federal and 30 percent cut in provincial development budgets. Government’s claim to manage the budget deficit at 2.2 percent of GDP during the first half of FY15 by deferring debt servicing was unsustainable. Revenue crisis was in the making as tax authorities would hardly collect Rs 2.6 trillion despite three to four proposals in the mini-budget to mobilise around Rs 130 to Rs 160 billion. As per IPR projections, GDP growth rate would remain 4.2 percent as against the target of 5.1 percent and inflation would be around 5 to 5.5 percent in 2014-15.
Dr Pasha’s comments on foreign sector of the economy were even more incisive. The government, he regretted, had been taking foreign loans not for investment but to finance the current account deficit. Pakistan had not been able to benefit from GSP Plus status because Pak rupee was overvalued by 15 percent against euro and 18 percent against the US dollar. A very nominal import of power generation machinery suggested that no major power generation project was started and no financial closure had taken place. Also, there had been no recovery in the power sector as power generation was down by 2 percent in July-December, 2014; losses had not been reduced and recovery of the billed amount was less than 35 percent. 22 percent decline in commodity prices and 40 percent in oil prices in the international market had been sensational but the government had taken decisions in favour of influential landowners to deprive the common man from the benefit. The Economic Co-ordination Committee (ECC) of the Cabinet had taken a bizarre decision to increase the support price of wheat to Rs 1300 per 40 kg when prices in the international market were on the decline. Trade deficit had widened by 36 percent but growth in home remittances and receipts from the Coalition Support Fund (CSF) had alleviated the situation. Foreign exchange reserves had increased because of Sukuk bond float of dollar 1 billion and release of dollar 1.1 billion from the IMF. An increase of dollar 2.4 billion in borrowings and a rise of dollar 1.5 billion in reserves shows that external borrowings had financed the balance of payment (BoP) deficit.
Observations of Dr Pasha at the IPR on 5th March, 2015 would appear to be mostly at odds with the persistent claims of the government to vastly improve the fundamentals of the economy and put it on a growth trajectory. There is no doubt that the PML (N) had contested the elections on the promise of prioritising and concentrating on economic development and there is now hardly a day when the Finance Minister or the Prime Minister does not lecture the nation on their achievements on the economic front. Their main focus is generally on their untiring efforts on reviving the economy, ending loadshedding in the next couple of years, taking foreign exchange reserves to a new high, stabilising the rupee rate and maintaining healthy relationship with the multilateral financial institutions. The revelations of Dr Pasha are a kind of reminder, if not an outright challenge, to the government that the myth of improvement in the economic indicators as frequently propagated by the present dispensation is not based on ground realities. The improvement in certain indicators like foreign exchange reserves has even been brought about by resorting to heavy external borrowings, which was a highly risky strategy. The criticism of some of the other so-called accomplishments of the government also appears to be totally justified. Any reduction in fiscal deficit should come through mobilising higher level of revenues and by containing expenditures rather than by deferring debt servicing, which is no more than a statistical trickery to evade the truth. Increase in the domestic support price of wheat at a time when international prices are coming down was obviously meant to please the agriculture lobby and deprive the consumers in urban areas of the benefit due to them. The obsession of the Finance Minister to keep the Pak rupee overvalued is simply incomprehensible when the trade account deficit of the country is widening. There was no logic in making the rupee-dollar parity a matter of prestige. We don’t know the basis of calculating the overvaluation of the rupee by such a high margin by Dr Pasha but certainly, the rupee needs to be depreciated to improve competitiveness of the country’s exports and contain imports.
While agreeing with Dr Pasha, we would urge upon the government to take stock of the situation in an impassioned way and give serious consideration to what the non-government economists have to say about the state of the economy. This is so because the choice of selective statistics to paint a rosy picture of the economy or distorting the figures would not help the country and its people in the long run. In particular, external borrowing from all conceivable sources to build up foreign exchange reserves and boasting about it would haunt the future generations of the country for a long time to come. Also, trillions of rupees borrowed from domestic banks to finance the budget deficit have to be repaid with interest. Besides, when the government consistently talks about the gains in the economy, people in general expect more concessions and relief, which the government is least able to grant at this juncture. This adds to frustration. It is, therefore, better to tell the truth now rather than face embarrassment or the consequences of harsh realities in future. It should also be kept in mind that government economists have a notorious tendency to give an exaggerated picture of the economy to please their bosses and earn respect.
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