Government responds to 'Misguiding the people'

Dr Ashfaque H Khan has written an article titled "Misguiding the people" carried byBusiness Recorder on 25-01-2017. In the article, the author has raised the issue of large-scale manufacturing (LSM) growth number. The author has further stated that the debt is on the rise with threatening pace and reforms which were "broadly on track" during the IMF programme appear to have evaporated. He further added that the process of rolling back of reforms has begun- classic examples include the winding up of regulatory bodies.
The author has raised the issue of LSM growth recorded in November on the basis of high sugar production. PBS follows an established UN methodology (available at PBS website) to estimate monthly LSM growth rates. One cannot pick low numbers or discard high numbers or vice versa at discretion and give growth rates including or excluding any sub-sector of LSM particularly production of sugar. The monthly figures for sugarcane production including for November 2016 were given by the Ministry of Industries and used by the PBS in the calculation of LSM monthly growth rate as per established estimation framework.
The historical growth trend of LSM sector suggests that whenever sugar crushing starts, the LSM growth rises as sugar has 3.5445 weight in food group and food group has 12.3703 weight in overall LSM production. Whether the worthy writer ever raised his concern over high growth of LSM due to better sugar production and worked out LSM growth without sugar.
The writer only focused on sugar production in LSM growth during the month of November 2016. By analysing group-wise performance of the LSM sector in November 2016 over the previous month, many sectors performed well. Textile sector recorded a growth of 0.23 percent in November 2016 against 0.05 percent in October 2016, Food Beverages & Tobacco 25.46 percent against -1.44 percent, Pharmaceuticals 9.12 percent against 6.07 percent, Automobile 11.35 percent compared to 7.04 percent, Iron & Steel products 20.64 percent compared to 12.80 percent, Fertilisers 4.88 percent compared to -1.91 percent, Electronics 9.82 percent compared to 5.00 percent, Paper & Board 6.25 percent compared to -5.72 percent, Coke & Petroleum products 3.92 percent against -1.65 percent, Leather products -7.81 percent compared to -25.35 percent, engineering products 18.91 percent against 2.93 percent and wood products -95.43 percent compared to -97.54 percent.
The industrial sector is being benefited from better availability of energy; continued low cost of borrowing; positive economic outlook of the country; and ongoing infrastructural projects. Moreover, the recent recovery in cotton prices would provide some relief to the textile sector - a major contributor both in overall LSM and exports of the country.
There is continuous credit expansion to private sector. The Credit to Private Sector (CPS) recorded an expansion of 12.1 percent during July to 13th January FY2017 against the growth of 8.6 percent in the same period of last year. In terms of flows, CPS has witnessed an expansion of 28.3 percent during the period under review. The expansion is helping manufacturing sector, which in turn, will further enhance productivity in industrial sector. A welcome development is the gradual rise in net credit disbursement for fixed investment. It implies that many firms are expanding their operations by availing fixed investment loan.
Encouragingly, a number of firms in cement and steel sectors are already making investment for capacity expansions; refineries are upgrading their plants; and a number of textile firms are undergoing Balancing, Modernisation and Replacement (BMR) and installing coal fired or captive power plants, etc. All these developments bode well for growth in industrial sector.
With regard to the rolling back of earlier reforms implemented under the recently completed IMF EFF program, the author has mentioned "winding up of regulatory bodies". In this regard, first of all it needs to be pointed out that there has been no "winding up" of regulatory bodies which continue to function within their respective areas in accordance with the parameters defined in their respective statues. The five regulators ie National Electric Power Regulatory Authority (NEPRA), Oil and Gas Regulatory Authority (OGRA), Public Procurement Regulatory Authority (PPRA), Frequency Allocation Board (FAB) and Pakistan Telecommunication Authority (PTA) have only been re-attached with their line ministries.
This reattachment has been made in accordance with the relevant provisions of Rules of Business 1973 of the Government of Pakistan, which have been framed under the Constitution of 1973. It is pertinent to highlight that this change will have no effect on the functional, financial and administrative independence of the regulators, which has been granted to these entities under their respective statutory laws and the rules framed therein. This decision also does not alter their legal powers given to them through their governing legislations.
The reattachment is expected to improve policy co-ordination between the government and the regulators. It is expected to result in improvement in the execution of sectoral functions. The regulatory bodies however, will continue to perform their duties independently of their line ministries to safeguard and protect the public/consumer interests, development and regulation of the sector. The statutory powers of these regulatory bodies for making appointments and transfers continue to remain unaffected.
The government's decision in this regard is also in line with the practice being followed in some regional countries, such as India and Sri Lanka. In India, the Telecom Regulatory Authority of India, the Oil and Natural Gas Commission and Central Electrical Regulatory Commission are working under their respective line ministries. Similarly, in Sri Lanka, the Ceylon Electricity Board and Sri Lanka Sustainable Energy Authority are working under the relevant line ministry.
With regard to the author's assertion on debt, it is to mention that the news article has made a false and misleading claim that finance minister has his own definition of public debt which is different from one used historically in Pakistan or used by international financial institutions. The public debt definition has not been changed. In fact the government has only formalised the definition of public debt through the recent amendment in Fiscal Responsibility and Debt Limitation Act. It is worth mentioning that there is only one public debt definition which has been stated through various publications of the government including Debt Policy Statement, Medium-Term Debt Management Strategy and Economic Survey of Pakistan. However, this article is another attempt to deliberately misleading the readers with respect to definition of public debt.
Moreover, the rationale of using external public debt instead of external debt and liabilities has also been clarified at many forums. The debt of other sectors is not public debt since the government is not liable to pay these obligations of private sector debt and bank borrowing etc.
On account of foreign exchange reserves, it is for writer's information that the foreign exchange reserves have grown to a comfortable level from an alarming level without corresponding increase in public debt. It is also worth mentioning here that while the external public debt has gone up from $48.1 to $57.7 ($9.59 billion) during the three years, the forex reserves of SBP have increased by $12.1 billion in the same period.