The three-year ceremony of the Pakistan Tehrik-i-Insaaf (PTI) government held at the imposing conference centre in Islamabad and addressed by Prime Minister Imran Khan focused, as expected, on what he considered were his administration's achievements. The Prime Minister claimed that the data presented by his administration is accurate unlike that presented by Ishaq Dar.

There is no doubt that Dar deliberately and frequently violated data integrity; soon after he took over the finance portfolio in June 2013 Dar amateurishly manipulated the Gross Domestic Product growth rate of 2010-11 to show that the GDP growth in 2013-14 was the highest in six years. However, Dr Hafeez Sheikh (the Khan administration's de facto finance minister from April 2019 till his dismissal on 29 March 2021) has a history of engaging in data violation an example being reducing inflation overnight by reducing the weightage of food by six points during his first stint as the country's finance minister (2010-13).

Be that as it may, the incumbent finance minister Shaukat Tarin does not have any history of data manipulation and neither does Asad Umar as the Minister for Planning, Development, Reforms and Special Initiatives under whose administrative control the Pakistan Bureau of Statistics (PBS) operates. And yet there are some discrepancies in the calculation of inflation, a politically sensitive indicator, following the dismissal of Dr Hafeez Sheikh on two counts.

First, the widening gap between consumer price index (CPI) used for the first time ever by the State Bank of Pakistan (SBP) from May 2019 till the onslaught of the pandemic in March 2020 to determine the discount rate, and the sensitive price index which monitors 51 essential (kitchen budget) items. In July 2021, CPI was 8.4 percent and SPI rose by 16.67 percent in comparison to the corresponding period of the year before.

Prior to May 2019 the SBP linked the discount rate to core inflation which monitors the price of non-food, non-energy items (not affected by discount rate changes in Pakistan). In July 2021 core inflation was 6.9 percent, below the discount rate of 7 percent. Thus there is unlikely to be any pressure on the SBP to raise the discount rate by either: (i) the International Monetary Fund (IMF) with sixth review talks scheduled for September (though the dates have not yet reportedly been agreed) given that the decision to link the discount rate to CPI was laid at the doorstep of the IMF; or (ii) domestic economists, including Shaukat Tarin, who severely criticized linking the discount rate to CPI as well as deciding to massively re-profile the short-term into long-term debt when the rate was as high as 13.25 percent (from July 2019 to March 2020) which has increased annual debt repayments significantly.

Disturbingly, the SPI which reflects the kitchen budget of the poor remains prohibitively high - a rate that does not keep pace with either the increase in the money disbursed under the Benazir Income Support Programme or indeed the pay raise since the Khan administration took over power due first to the severely contractionary fiscal and monetary policies pre-pandemic and later due to the pandemic.

And secondly, the SPI may well be understated by taking the announced subsidized price of many commodities available only in the Utility Stores though their availability or quality remains in question. The Prime Minister during his three- year anniversary speech also did not dwell on the eroding rupee - from 153 rupees to the dollar in May 2021 to over 165 rupees today, a rise of over 8 percent, which is impacting on SPI due to import of wheat, cooking oil, sugar as well as petroleum products (with a direct impact on transport of goods and people). With a projected 610 billion rupees budgeted from petroleum levy in the current year against 160 billion rupees in the last budget presented by the PML-N government this reliance needs to be contained though during the first two months of the current year the government slashed the levy due to political considerations.

The government laid all negative indicators at the doorstep of the pandemic while taking credit for all positive indicators though with the 3.9 percent rise in GDP last year the negative includes mainly a decline in foreign direct investment - from 2.59 billion dollars in 2019-20 to 1.84 billion dollars last fiscal year. Pandemic may have little to do with this decline as China, the only major foreign investor in Pakistan today, has completed the large infrastructure projects under China Pakistan Economic Corridor and there are delays in the launch of the second phase including the less costly agriculture/social sector investments due to recent terror attacks targeting Chinese nationals.

The positive indicators in the monthly economic update and outlook July 2021 include: (i) a rise in remittances to 29.4 billion dollars from 23.1 billion dollars in 2019-20 - the reason is the return of Pakistani emigrants with their savings due to the pandemic and their uncertainty as to if and when they would be able to return abroad - a factor that is also evident in the rise in remittances of other regional countries including India; (ii) SBP foreign exchange reserves of 11.9 billion dollars in 2019-20 to 22.86 billion dollars today which include 2.77 billion dollars additional IMF SDRs based on our quota (an IMF decision for all its members) and around 50 percent of the remaining 17.8 billion dollar reserves are equity debt as well as swap arrangements. And given that they are not being used to buffer the rupee one is forced to conclude that the SBP may also use this as a bargaining chip with the Fund; (iii) exports rose from 22.5 billion dollars in 2019-20 to 25.6 billion dollars - a rise that is attributed to the diversion of the orders from India/Bangladesh to Pakistan; (iv) FBR revenue rose from 3.9 trillion rupees in 2019-20 to 4.7 trillion rupees in 2020-21 - an amount that is not in synch with the GDP of 4 percent and inflation of 9.7 percent given that for the current year a GDP of 5.02 and an inflation of 8.2 percent is projected to generate 649 billion rupees more; and (v) large scale manufacturing grew by 36.8 percent in 2020-21 from negative 25.5 percent in 2019-20. The construction package, the easing of fiscal and monetary policies, the decision to check the rise in tariff (subsequent to the appointment of Tarin as finance minister) no doubt contributed to this figure. However, it must be borne in mind that the base in 2019-20 was very low and given that the pandemic did not hit the country till end March 2019 the onus of this appalling performance has to be laid at the doorstep of the prevailing fiscal and monetary policies.

To conclude, there is no room for gloating or complacency. The time is for seeking solutions to intractable economic issues particularly in power and tax sectors through reforms as well as ushering in governance reforms and the most relevant pro-poor policy today is not the Ehsaas programme or let no one sleep hungry or the panahgahs (though they do show that the heart of the prime minister is in the right place) but on reducing the SPI.

Copyright Business Recorder, 2021


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