Country headed for recession

As we had warned prior to the vote of no-confidence (VONC) in March 2022, the PDM (Pakistan Democratic Movement) government’s economic blunders are inflicting huge economic losses on the country and its people in the shape of record high inflation, a woefully weak currency, etc.

All records have been broken in the first six months of the PDM regime, with inflation of 27.3% in August rising to the highest levels ever recorded in our history.

The government borrowing in the first 4 months of Rs 7.4 trillion is another new record. At the current pace the PDM government will increase Pakistan’s debt by a whopping Rs 22 trillion in its first year. It will be more than the total amount of public debt accumulated in three and a half years under the PTI (Pakistan Tehreek-e-Insaf) government.

This is clearly an unsustainable path for the economy, and hence the international investors are pricing in the highest risk of default for Pakistan. The yield on the Dec 2022 International bond is now trading at 113%, whereas it was trading at below 9% before the VONC.

Low investor confidence, record-high cost of doing business, and draconian tax measures and import restrictions are dragging the economy into a recession at the proverbial ‘Shehbaz’ speed. The Large scale manufacturing sector posted a decline of -1.4% y/y in July 2022 and is down 28% from the peak levels posted under the PTI government in March 2022.

Post-July the outlook has deteriorated further as a result of the super floods. The loss of crops, livestock, and livelihoods of more than 30 million flood-affected citizens will have a significant impact on the growth outlook.

Despite the misery facing the people, the PDM government remains focused only on wasting scarce taxpayers’ money on running the largest cabinet in history with more than 70 ministers / SAPMs, unending pleasure trips abroad and giving relief of billions to their own leadership.

Now the PDM government has brought back Ishaq Dar to find a way out of the mess that has been created in the last six months.

While on paper he will show improved performance and announce populist measures, he will only be pushing the economy towards a bigger crisis, as he successfully did in his last stint in 2018.

In 2018, the PTI government inherited an economy, which was on the verge of sovereign default with $ 20bn current account deficit (CAD) and less than $ 10bn of SBP (State Bank of Pakistan) reserves. CAD in 2022 is estimated at $ 17.5 bn and SBP reserves were over $ 16bn when the VOCN was moved in March 2022. However, unlike the PDM government, the PTI government was able to turn around the economy to outperform the global and regional markets post-Covid pandemic.

We achieved this through reforms aimed at addressing the core issues of our economy, namely the investment-saving gap, the revenue-expenditure gap and through measures to enhance productivity across the agriculture and manufacturing base.

The investment-saving gap was brought down from $ 20bn (7% of GDP) in 2018 to $ 1.8bn in 2021. This was achieved through strong growth in exports of goods & services and record remittances from overseas Pakistanis.

The commodity super-cycle in 2022 has led to widening of the CAD, with international oil prices at the highest levels since 2011. Yet even despite record high oil prices, CAD in 2022 is estimated at $ 17.5bn (4.5% of GDP), which is still below the 2018 levels. Exports of goods reached record levels of $32.5bn, compared to $24.2bn in 2018. Exports of IT sector doubled to over $2.5bn, from less than $1bn in 2018.

The revenue-expenditure gap was addressed through reforms to broaden the tax base and enhance compliance. Reforms included targeting the retail sector through the point of sale machines, the single window operation for customs for reducing under-invoicing and the ‘track and trace’ system for the big industries including sugar, cement, tobacco and steel. As a result of these reforms, the FBR collected over Rs 6.1 trillion in FY22, a growth of over 26% despite keeping GST on petroleum products at 0%.

The PTI government’s economic policies led to a significant increase in productivity across the agriculture sector and the manufacturing activity.

This can be seen with the record crop output and record growth of the manufacturing sector in the last two years. Large scale manufacturing (LSM) posted an 11.7 percent increase, with record exports of $ 32bn.

The inclusive growth strategy adopted by PTI government with focus on labor intensive construction, export industry, SMEs, tourism, and agriculture has led to the creation of 5.5m jobs in first three years, the highest by any government on record.

On average 1.84m jobs per year were created under the PTI, which is significantly higher than PPP (1.4m) and PML-N (1.1m). Data shows that we would have achieved 10 million jobs that were promised by Imran Khan in the 2018 manifesto.

Inclusive growth entailed providing incentives to those middle income households, small farmers, youth, women and entrepreneurs that are marginalized in the current system of trickle-down growth. The Low-Cost Housing programme and the Kamyab Pakistan program (KPP) success can be seen in the numbers.

According to the SBP, over Rs 450bn has been disbursed by June 2022, from Rs 150bn end of 2019, under the housing programme, benefitting more than 30,000 first-time home buyers across Pakistan. Similarly, the Kamyab Pakistan Programme (KPP) of interest-free loans helped uplift incomes and livelihoods of millions of low and middle income households.

In line with Imran Khan’s vision of a Riyasat Madina, extraordinary measures were taken to scale up Ehsaas spending for the poorest households. During the pandemic the government provided cash assistance to 15 million households (45% of total population), making it the largest social welfare transfer in Pakistan’s history.

The landmark universal healthcare program Sehat Insaf card coverage was enhanced in 2021 and now covers all citizens of KPK, Punjab, Islamabad, GB, AJK and certain districts of Sindh and Balochistan. As a result, citizens benefit from free hospitalization and healthcare, providing savings of Rs 10 lakh to each family.

It was the success of Imran Khan’s policies and the fear of his growing popularity that the PDM leadership schemed to topple his government, with the help of their facilitators. It is now obvious to all citizens that the agenda of the PDM leadership was to change the accountability and electoral laws to their advantage.

The PDM leadership has no agenda for the welfare of the people.

The only solution to the country’s economic woes is an immediate free and transparent general election. If the PDM government is allowed to continue any longer, the economy will reach a stage where it will be impossible for anyone to rescue or revive it.

Copyright Business Recorder, 2022