EDITORIAL: Prime Minister Imran Khan while addressing the launch of the ‘track and trace’ system for sugar industry stated that the biggest problem facing us is that there is not enough money to run the country and consequently the country has to borrow.
In his speech he also alluded to the possibility of a threat to national security that may be posed by a highly indebted economy. Acknowledging that efforts to introduce the ‘track and trace’ system have been ongoing since 2008 or for 13 years, including three years of his own administration, the Prime Minister implicitly accepted serious governance issues which contribute to Pakistan’s low ranking on government effectiveness index, compiled by the International Monetary Fund – at 130 out of a total of 192 countries with India at 59, Sri Lanka at 93 and even Maldives at 95. Bangladesh though is ranked even lower at 153.
Pakistan’s budget deficits reflect the veracity of the Prime Minister’s claim that there is not enough money to run the country which necessitates borrowing. And notwithstanding the major belt tightening in the Presidency and the Prime Minister’s House including sale of items/livestock considered superfluous as well as a significant reduction in foreign tours, the fact remains that budget deficits have remained unsustainable for the past three years — at over 7 percent. And current expenditure has risen by a lot more during the past three years than ever before.
True that part of the reason is rising current expenditure which rose from 3.9 trillion rupees in 2016-17 to 5 trillion rupees in 2018-19 (an election year) to over 7.5 trillion rupees in 2021-22 (though if one subtracts the Ehsaas programme budgeted at 240 billion rupees as previously this item was in development expenditure outside PSDP) total current expenditure is budgeted at 7.25 trillion rupees – a 45 percent rise.
In a kitchen budget of a household it is income that determines expenditure. Thus with an anticipated rise in petroleum levy, an addition of 4 rupees per month till the levy is at the rate of 30 rupees per litre, a householder would have to economize on his vehicle’s use and/or public transport if he is to make ends meet. Similarly, the administration needs to focus on reducing its current expenditure rather than allow it to rise unabated. The government’s argument is that it cannot reduce: (i) debt servicing and repayment of principal amount as and when due as default would simply cripple the economy.
However, in this context too, it is relevant to note that during the past three years the rate of rise of debt has been unprecedented in our history - domestic borrowing has risen from 16.5 trillion rupees in August 2018 to over 26 trillion rupees today, a 58 percent increase, while external debt has risen from 95 billion dollars inherited by the PTI administration to 126 billion dollars today, a 33 percent rise.
To blame it entirely on previous administrations is a narrative that is no longer finding traction as no government anywhere in the world starts afresh but instead pledges to resolve the issues due to flawed policies of their predecessors; (ii) defence outlay, given the security challenges facing the country today especially after takeover by the Taliban, cannot be reduced.
This is a valid argument however audit reports indicate that waste in both civilian and defence procurements and day-to-day functioning are significant and these require immediate attention and curtailment; and (iii) pensions continue to rise and it is about time the government began to implement the pension reforms that were formulated by former finance secretary and one of prime minister’s special assistants Waqar Masood Khan last calendar year.
Imran Khan also chaired a review meeting of the Prime Minister’s Priority Sectors on Tuesday and subsequent to receiving a detailed briefing on the progress of Phase-II of the China Pakistan Economic Corridor (CPEC) he stated that the government’s focus is now on increasing investment in export industry to create employment and growth.
These statements have been made repeatedly during the past three years as well as during previous administrations with the same incentives (fiscal and monetary as well as cheaper utility rates) extended to the export sector; however, exports continue to hover around 9 to 10 percent of the GDP as against the required minimum of 15 percent of the GDP. Consequently, they continue to be outpaced by imports and the danger of a current account deficit looms large once again on the horizon, in spite of the massive rise in remittance inflows.
There is, therefore, a need to undertake empirical studies instead of relying on the same policies that did not pay significant dividends in the past. Derek H. C. Chen, senior World Bank economist, at the launch of a report on Pakistan Economic Update titled Reviving Exports put it succinctly: “The long-term decline in exports as a share of GDP has implications for the country’s foreign exchange, jobs, and productivity growth.
Therefore, confronting core challenges that are necessary for Pakistan to compete in global markets is an imperative for sustainable growth.” The recommendations include (i) gradually reduce effective rates of protection through a long-term tariff rationalisation strategy to encourage exports; (ii) reallocate export financing away from working capital and into capacity expansion through the Long-Term Financing Facility; (iii) Consolidate market intelligence services by supporting new exporters and evaluating the impact of current interventions to increase their effectiveness; and (iv) Design and implement a long-term strategy to upgrade productivity of firms that fosters competition, innovation and maximizes export potential.
His suggestions/recommendations are worthy of serious consideration.
Copyright Business Recorder, 2021