EDITORIAL: The PTI administration's tangible achievements during its two years of its five-year tenure may be not be many but they are significant. First and foremost is the successful renegotiation with Independent Power Producers (IPPs) established in 2002 (those established in 1994 are reportedly going to be retired while those established under China Pakistan Economic Corridor would be revised though the announcement would be made during a high-level Chinese official's visit to Pakistan). Critics may point to some lacunae including reconciling past invoicing mistakes as well as what is being projected as a relatively small impact on electricity tariffs; however, this must not detract from the agreement itself which is subject to IPPs' boards of directors, Nepra and the Cabinet approval; and which envisages: (i) future savings in fuel to be shared on a sliding scale; (ii) future savings in operations and maintenance to be shared on a 50:50 basis after accounting for any reserves created for major overhauling; (iii) a one-time heat rate test would be carried out to determine whether actual efficiency matches the reported efficiency in financial statements; (iv) future invoices delayed payment rate would be reduced to Kibor plus 2 for the first 60 days after due date and thereafter at Kibor plus 4.5 as in the PPAs; (v) return on foreign equity would be 12 percent and on local equity including return on equity during construction the return would be 17 percent in rupees on Nepra approved equity; and (vi) projects to be converted to take and pay basis when competitive trading arrangement is implemented and becomes operational as per the terms defined in the licence of each IPP.
No other previous administration had opted to renegotiate the deals with IPPs. Credit therefore must accrue to the PTI administration.
Secondly, the incumbent government's focus on enhancing the allocation for the Ehsaas programme as well as graduating over 800,000 previous beneficiaries out of the programme is laudatory; though the bulk of Ehsaas is administered through Benazir Income Support Programme (to the tune of 200 billion rupees in the current year against the budgeted 180 billion rupees last year though actual disbursements due to the Covid-19 were 234,200 million rupees). The langarkhanas (halfway houses) must be appreciated, however, it appears that transient labour is the main beneficiary though one would have hoped that it was targeted towards the unemployed and those with no homes anywhere in the country.
The oft quoted achievement by the Prime Minister - notably the decline in the current account deficit is also a major achievement of this government; however, while the contractionary fiscal (budgeted tax revenue of 5.5 trillion rupees) and monetary policies (discount rate of 13.25 percent till March 2020) impacted severely on (i) imports which declined from 51.8 billion dollars July-June 2019 to 42.4 billion dollars in July-June 2020 (a decline of 18 percent), that accounted for negative large-scale manufacturing growth (negative 7.74 percent) as many export-oriented industries rely heavily on importing raw materials; and (ii) exports declined from 24.2 billion dollars in 2019 to 22.5 billion dollars in 2020 (a decline of 7 percent).
The stock market is buoyant, cited as an achievement by the country's economic managers, however the market is very narrow in this country with a handful of players and its impact on development and on the general public is almost nil; in addition, the stock market pays very little tax, less than 2 billion rupees per annum.
Growth rate was negative 0.4 percent in 2020 (41.7 trillion rupees in absolute terms) against the budgeted growth rate of 2.4 percent (as claimed in the budget documents 2020-21). Covid-19 and the locust attack simply compounded the decline in the GDP growth rate.
The government has taken extraordinary measures, with prior approval from the International Monetary Fund, to jump-start the construction industry through an amnesty scheme for an extremely limited period - till the end of the calendar year, hopefully it would generate increased industrial activity, generate employment and generate growth in the economy.
Unfortunately, however, the two main macroeconomic indicators that impact the people directly performed appallingly in the year just past when the country began an IMF programme - unemployment and inflation. Unemployment rose due to the contractionary policies that had to be followed under the IMF programme. Inflation registered at 11 to 12 percentage points as per the budget documents with food inflation particularly wheat and sugar registering a significant rise in spite of the publication of the damning inquiry report. Dismissing the rise in prices as the outcome of the mafia (more appropriately defined as collusion between the private sector and the policymakers) did not ameliorate public suffering while many private institutions were compelled to lay off employees and reduce salaries given the projected low growth rate of 1.5 percent (pre-Covid-19). And most disturbing of all, despite the Ehsaas programme, the national poverty ratio was projected to have declined from 31.3% in June 2018, to over 40% by June. In absolute terms, those living in poverty increased from 69 million in June 2018 to 87 million by June 2020 - a 26% increase in poverty.
To conclude, while there have been some notable achievements the government needs to do a lot more work if it is to succeed in providing some measure of feel good factor to the public at large. The IMF programme in particular requires taking measures that are increasingly raising the cost of living on the one hand and eroding the investment climate in the country on the other. There is therefore a need to renegotiate with the IMF in terms of phasing out the implementation period of the agreed structural benchmarks and quantitative time-bound conditions.
Copyright Business Recorder, 2020
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