EDITORIAL: Fitch in its latest report has projected a fall in remittances projecting a rise in the current account deficit whose containment has been an oft-cited major achievement of the PTI administration to date. Reliance on remittances has historically been significant: remittances accounted for 13.9 billion dollars in 2012-13 against exports of 24.8 billion dollars, 18.7 billion dollars in 2014-15 against exports of 24 billion dollars, 19.9 billion dollars in 2017-18 against 24.7 billion dollars of exports. In 2018-19, the first year of the Pakistan Tehrik-i-Insaaf government, exports declined to 22.5 billion dollars while remittances rose to 23.1 billion dollars and in July 2020 exports were as low as 436 million dollars while remittances were 2.76 billion dollars. The reason cited for the rise in remittances in recent months range from the disbursement of severance packages as countries downsized their emigrant workforce as a consequence of recession and lockdown due to the pandemic to the constraints to send money through the hundi/hawala system during the pandemic compelling the transfer of funds through the banking system.
If Fitch's prognosis of a decline in remittances is correct then the onus of containing the current account deficit would fall on a commensurate rise in exports - not by a few percentage points which, given the low export base, is having an insignificant impact on total export earnings. To raise exports unfortunately continues to be a challenge as despite the incentives given to exporters in terms of utility costs, taxes and borrowing at lower than the discount rate, the perception in the market remains unfavourable,
Mounting debt is the second major source of concern given the high debt to GDP ratio which would compromise the government's capacity to respond to rising social spending needs, Fitch further noted. There is evidence to suggest that while the Prime Minister's laudatory focus on his signature Ehsaas programme has accounted for the largest-ever raise in Benazir Income Support Programme from 120 billion rupees in 2017-18 to 206 billion rupees in the current year; yet, the scope of the contractionary fiscal and monetary policies agreed with the International Monetary Fund, declared unrealistic and anti-business by those with greater experience working with the Pakistan economy than the PTI's economic team leaders, is raising poverty levels due to lower productivity and layoffs. A more phased approach in these policies to minimize their detrimental impact on productivity is of course required.
Pakistan's budget deficit is a source of serious concern and is budgeted to rise to 8.7 percent in the current year. The Khan administration's reliance on domestic borrowing as well as on foreign borrowing has reached unprecedented levels - domestic borrowing has risen from 16 trillion rupees to more than 23 trillion rupees in two years, the highest in any two years, and envisages foreign borrowing to the tune of 38.6 billion dollars (with 2 billion dollars added due to the pandemic) in thirtynine months as declared by the economic team in a document uploaded on the IMF website - again the highest ever in the country's debt history. In this context, it is relevant to note that during the recent cabinet meeting on Tuesday it was decided to shut down dysfunctional power plants which were expensive to run.
Plants with a capacity of 1479 MW would be shut down immediately and other plants with a combined capacity of 1460 MW would be closed by the end of this month. While appreciating this decision it is important for the cabinet to focus on excess generation capacity which remains unmatched by transmission capacity, more than the internationally acceptable line losses and heavy reliance on borrowing due to sectoral inefficiencies (with interest payments passed on to the hapless consumers). These factors account for not only a rising component of a householder's income on utility charges but have also raised costs of production making our goods uncompetitive in the foreign and local market with unchecked smuggling across our porous borders.
The PTI government has already completed two years of its five-year tenure with the half way line due by end February 2021 but with little to show other than a reduction in the current account deficit. There is a need to focus on rising poverty levels due to fiscal and monetary policies which are fast negating the rise in allocation for Ehsaas programme as the numbers of unemployed and under employed are rising exponentially.
Copyright Business Recorder, 2020