EDITORIAL: Prime Minister Imran Khan while addressing the ground-breaking ceremony of the new emergency department of Pakistan Institute of Medical Sciences (PIMS) claimed that all economic indicators are going in the right direction and the International Monetary Fund (IMF) has stated that the Pakistan economy is moving in the right direction. This claim, sadly, indicates that he has not been briefed properly by any of the relevant ministers.
The Advisor to the Prime Minister on Commerce, Abdul Razak Dawood, tweets the rise in exports focusing on the percentage rise instead of total figures but does not tweet import figures while refusing to take any responsibility for the massive rise in imports though commerce, by definition, includes both these elements; while his justification that petroleum and products, the recent rise in food imports when international prices are high and cooking oil imports are due to sustained flawed policies of other ministries has merit, yet he must accept responsibility for the trade balance that impacts on the current account deficit as cabinet governance defines collective responsibility.
The Prime Minister was also not briefed when exports last year reached a historic high of 25.3 billion dollars that the reason behind this rise is a rise in the international price of our major export items rather than a corresponding rise in volumes while imports reached a historic high as well and clocked 56.3 billion dollars.
The data released by the Pakistan Bureau of Statistics (PBS) reveals that in 2013-14, exports totalled marginally less than the last fiscal year — 25.1 billion dollars with imports of 45.8 billion dollars, thereby showing a much lower and sustainable trade deficit. True that Ishaq Dar’s subsequently disastrous policy of artificially keeping the rupee overvalued eroded the export base in spite of the GSP Plus status by the European Union yet one would be forced to conclude that the trade deficit is a major source of concern today. Remittance inflows remain high and continue to provide the much-needed support to the current account deficit.
Energy sector continues to perform poorly with circular debt rising to 2.4 trillion rupees (against the 1.2 trillion rupees inherited by the Khan administration) attributable to high receivables, theft, high distribution and transmission losses as well as inordinate delays in importing RLNG for the third year running, thereby creating severe shortages in the country with implications on the quality of life of the public as well as loss of output. Blaming previous administrations for agreeing to contractual obligations that are against the interests of the consumers, though a legitimate argument but democratic dynamics are; that all issues and their resolution are the responsibility of the incumbent administration.
The Prime Minister’s statement that the IMF has said the Pakistan economy is moving in the right direction is perhaps the most imprecise and beguiling statement of all for four major reasons. First, surely he has been briefed about the concerns, as expected, voiced by the IMF as to the February 28 relief package and the 1 March industrial package envisaging the third amnesty scheme with the obvious question being: where would the money come from for the subsidies required for the relief package while the amnesty scheme may ensure that Pakistan remains on the Financial Action Task Force grey list which may have negative implications on attracting foreign direct investment, borrowing at cheaper rates internationally and last but not least sale prices of entities earmarked for privatisation.
The Prime Minister’s litany that the Federal Board of Revenue has generated more revenue which would pay for the relief package is not accurate because: (i) total FBR collections July-February are 3.79 trillion rupees against the budgeted total of 5.8 trillion rupees (with the revised target raised to 6.1 trillion rupees) yet 52.2 percent of the taxes collected so far are from imports and with the recent rupee erosion (a policy decision by the State Bank of Pakistan to curtail imports) imports have declined with a consequent impact on revenue collection despite the mitigating contribution of higher yield in per unit collection of taxes at import stage; (ii) non-tax revenue of 610 billion rupees budgeted petroleum levy collection has dramatically declined to a little over 100 billion rupees due to the relief package — a decline that is higher than the upward revision of the FBR budgeted target by 300 billion rupees; and (iii) to contain the resultant rise in the budget deficit the government has had to mercilessly curtail Public Sector Development Programme which, in turn, would impact on the growth rate and in turn on FBR collections.
It increasingly appears the Prime Minister is being briefed that inflation is due to external factors — pandemic and the ongoing Russia-Ukraine war; however, he has not been briefed on one basic economic principle: as you inject more and more money into the economy not backed by increased output, and the rise in the government’s current expenditure comes in this category that has risen from 4.3 trillion rupees in 2018 to budgeted 7.5 trillion rupees. Domestic debt has increased to over 27 trillion rupees till today as against over 16.5 trillion rupees inherited by the Khan administration following the 2018 general elections. Thus to inject more relief without a rise in output is a highly inflationary policy.
The economic managers are being constantly appreciated by the Prime Minister and his cabinet for boldly spearheading the Prime Minister’s flagship projects, including housing loans to the poor and cheap to zero interest loans to the poor and vulnerable under the Kamyaab Pakistan programme. While the intent is laudable yet the success or otherwise of these programmes remains in question if past precedence is anything to go by. What is being ignored is the contribution to inflation by using the exchange rate as a shock absorber to contain imports and 50 percent of all foreign exchange reserves sourced to borrowing.
Agriculture output, a provincial subject, is rising, so claimed the Prime Minister but perhaps he needs to have a look at the most recent Monetary Policy Statement (8 March 2022), notes that agriculture prospects have somewhat weakened with key inputs such as fertilizers off-take and water availability lower than last year.
Large-Scale Manufacturing (LSM) index is rising as per the PBS which must be appreciated — 3.9 percent for July-January 2021-22 compared to the comparable period of the year before. However, it is baffling to note that Oil Companies Advisory Council notes 0 percent rise year-on-year (providers of a key input) in petroleum consumption while the provinces showed a 1.9 percent rise in this sector with the bulk of the rise 4.4 percent year-on-year shown by Ministry of Industries.
Despite the intense focus the state of the economy today leaves a lot to be desired and one would hope that the Prime Minister is correctly briefed on the actual position instead of being told that all is well when it is not for that is tantamount to doing a grave disservice to the country and its people.
Copyright Business Recorder, 2022