EDITORIAL: The Economic Survey 2020-21 was unveiled by Finance Minister Shaukat Tarin (appointed on 16 April 2021), a man who took a rather dim view of the monetary and fiscal policies pre-pandemic – more specifically from 12 May 2019 till end March 2020. He has criticised the discount rate of 13.25 percent as too high given core inflation at less than half this rate, massive depreciation within a short span and a tax target that was simply unrealistic at 5.5 trillion rupees. As he presented the Survey he was in the unenviable position of registering satisfaction at some of the outcome of these same policies particularly with respect to the unexpectedly high growth rate of 3.94 percent in 2020-21 which he explained away by echoing his predecessor: stabilisation has been achieved and from now on growth of over 5 percent per annum will be the administration’s overarching objective.
Tarin’s focus of appreciation: the Prime Minister ranging from his smart lockdown policies that minimized the negative economic fallout of the pandemic, easing of the monetary and fiscal policies after the pandemic’s onslaught, the Ehsaas emergency assistance programme that disbursed 203 billion rupees to those impacted by the pandemic as well as the Kamyaab Jawan programme, the construction/housing sector incentives which, he added, will continue, remittances rise by 29 percent accounting for a current account surplus (reflective of the bond between the overseas Pakistanis and Prime Minister Khan), and Roshan Digital Account credited with over one billion dollars.
Tarin’s pledges: to raise the financial sector’s capacity to extend credit to the poor (an objective he is suited for given his long and successful banking career), support the Ministry of Commerce-led incentives to fuel productivity and more importantly exports and; not raise utility prices (though previous incentives strengthened industrial pressure groups opposed by the Prime Minister), and provide alternatives for the policy measures agreed with the International Monetary Fund (IMF) by the authorities in February 2021. However, the delivery of these ambitious plans is unlikely within one year though one hopes that the foundation for these policy measures will be laid.
The Survey compiled by the Economic Advisor’s Wing, administratively under the control of the Ministry of Finance, reinforced the recent macroeconomic data uploaded by the Pakistan Bureau of Statistics (PBS), operating under the aegis of the Ministry of Planning, Development and Special Initiatives, by providing much greater detail. The growth rate of 3.94 percent for the current fiscal year was upheld by the Survey sourced mainly to 4.43 percent growth in the services sector (accounting for 61.68 percent share in the Gross Domestic Product) against negative 0.55 percent growth in the previous year. Retail and wholesale trade, including aarhtees (agents who purchase from the small farmers many of whom they bankroll and sell at windfall profits to the end consumers) criticised by the Khan administration for their responsibility in fuelling food inflation, grew by 8.37 percent this year against negative 3.94 percent last year.
Pakistan is a net food importer today of various commodities, including wheat, sugar, edible oil, tea and lentils, Tarin lamented, adding that the government had passed on a limited raise in the international prices of these commodities while his solutions were appropriate: commodity warehousing, cold storage facilities, strategic reserves and administrative infrastructure. There is a shorter gestation period in raising crop output and one hopes that he is successful in making Pakistan self-sufficient followed by exports of farm output.
Wholesale/retail trade component of the service sector is backed by farm/manufacturing/imports. Farm output (accounting for 19.19 percent of GDP) rose by 2.77 percent this year – a raise that compares unfavourably with a raise of 3.31 percent in 2019-20 which was on the back of 0.56 percent growth in 2018-19 – the first year of the Khan administration. The Finance Minister pledged to target this sector in the budget to be presented today.
Manufacturing accounting for 12.79 percent of GDP grew by 8.71 percent against a very low base of negative 7.39 percent with large-scale manufacturing (LSM) accounting for 9.29 percent growth this year against negative 10.12 percent last year and small-scale grew by 8.31 percent this year against 1.50 percent last year. This significant growth was in spite of the massive decline in electricity generation, distribution and gas distribution (negative 22.96 percent) this year against a rise of 22.4 percent last year given the fact that energy is considered a key input for large-scale manufacturing sector.
The closure of shops and malls due to the pandemic accounted for a significant growth in the private delivery services (itemized under other private services) which registered a growth of 4.64 percent this year against 4.56 percent last year though bafflingly it recorded a higher growth of 6.17 percent in 2018-19. Transport storage and communications grew by negative 0.61 percent this year against negative 3.80 percent the year before, though financial and insurance services rose by 7.84 percent this year against an appallingly low 1.13 percent the year before.
The Survey citing the PBS stated that the working population was 55 million pre-pandemic which declined to 35.4 million claiming that subsequent to the monetary/fiscal stimulus package 52.56 million were employed giving a shortfall of 2.44 million people. As per the Economic Survey document, a survey carried out by the PBS, inexplicably not available on the PBS website, the largest loss of jobs was in construction (80 percent), followed by manufacturing (72 percent), transport and storage (67 percent), wholesale and retail trade 63 percent.
Some data requires clarification including: (i) public investment rose by 38 percent July-March 2020-21 against negative 3.7 percent the year before, however, the stimulus package targeting private sector accounted for a private investment growth of only 6.6 percent against 10.3 percent the year before when growth was negative 0.4 percent; (ii) external debt repayments recorded at 1080 million dollars July-March 2021 compared to 1580 million dollars the year before. However, there is no mention of the debt relief initiative by G20 that Pakistan availed last fiscal year and is reportedly requesting again till the end of this year; (iii) total domestic debt rose to 25.5 trillion rupees by end March 2021 against 16.4 trillion rupees in June 2018 – a highly inflationary policy; and (iv) stock exchanges growth was negative 20.5 percent in 2018-19 and positive 29.5 percent this year as a consequence of the stimulus package, however, for the sceptics it is relevant to note that it was 52.2 percent in 2012-13, 41.2 percent the following year, and in negative territory in 2018-19 (negative 10) and 2018-19 (negative 20.5 percent).
While the government’s focus is on domestic growth as the engine of employment generation and lower prices the public remains focused on inflation and poverty as the Ehsaas programme, better structured through the use of technology, is not enough to meet the growing ranks of the poor and vulnerable – critical data missing in the Survey.
Copyright Business Recorder, 2021