EDITORIAL: The release of the Economic Update and Outlook for the month of May, through a Whatsapp message to beat reporters (and a delay in uploading it on the Finance Division website) should ring even louder alarm bells relative to the April Update as data reveals that the economic impasse has clearly deepened on all counts.
First, remittances declined from 26.1 billion dollars July-April 2021-22 to 22.7 billion dollars in the comparable period of this year reflecting a loss of desired foreign exchange inflows by a whopping 3.4 billion dollars. Remittance inflows continue to decline as the July-March figure showed a decline of 2.5 billion dollars this year compared to the year before - a decline attributable to the government’s flawed policy to control the rupee-dollar parity, abandoned on 27 January 2023, prompting the IMF to field a mission to discuss the ninth review, but disturbingly implemented again as the widening gap of 25 to 30 rupees between the interbank rate and the open market rate/hundi/hawala rate indicates.
The exchange rate is cited at 285.16 rupees to the dollar on 28 May 2023 against 283.4 rupees to the dollar on 26 April 2023; however, given the penchant of the finance minister to control the rupee rate, and that too without the foreign exchange reserves required to intervene in the market, the Update must include the open market rate as well as the hundi/hawala rate in the event that the two are not identical – an addition that would provide an explanation for the steadily worsening economic stalemate.
Second, exports continue to decline – from 26.9 billion dollars July-April 2022 to 23.2 billion dollars in the comparable period of this year or a decline in total terms of 3.7 billion dollars against a reduction of 2.6 billion dollars July-March 2023 compared to the year before. This decline is in spite of Dar’s decision to extend 110 billion rupee electricity subsidy to exporters effective 1 October 2022, which was recently abandoned after the ninth review February negotiations with the Fund.
One would hope that these dismal figures would finally convince Dar to undertake empirical studies to determine their effectivity prior to announcing subsidies.
Imports have declined dramatically due to administrative measures, which account for a further contraction in the current account deficit to 3.3 billion dollars July-April 2023 against 3.4 billion dollars July-March this year as opposed to 13.7 billion dollars in the comparable period of last year; however, it is critical to look at indicators that are faring very poorly due to this containment, including the growth rate of nearly 6 percent last year compared to the projected 0.3 percent this year (with independent economists assessing the rate in the negative territory this year), large scale manufacturing sector declined by negative 8.1 percent July-April this year, a worsening trend as July-March figure for the current year is negative 5.6 percent, against positive 10.6 percent the year before – reflected by a further decline in credit to the private sector to 257.8 billion rupees July-March 2022-23 from 302.3 billion rupees July-March this year.
The government’s current expenditure is not featured in the Update; however, fiscal deficit July-March was 2392 billion rupees (against 2273 billion rupees in the comparable period of the year before) while July-April figure has risen to 3535 billion rupees.
This rise is in spite of massively slashing Public Sector Development Programme (including grants to provinces) to 329 billion rupee July-April 2023 (against 3165 billion rupees in the comparable period of the year before making one marvel as to how the Ministry continues to blame the previous administration for the current economic impasse.
The budgeted PSDP (public sector development programme) for the current year was 727 billion rupees. And most disturbingly, the IMF conditions that have been implemented are focused on passing on the buck to the consumers notably through a raise in utility rates as well as in indirect taxes (including the petroleum levy) whose incidence on the poor is greater than on the rich with obvious negative fallout on poverty levels but with no attempt made to implement structural reforms in the two worst performing sectors of the economy – the power sector and the Federal Board of Revenue.
It is increasingly clear that the previous economic team leader, Miftah Ismail, left a set of monetary and fiscal policies that were supported by the Fund, which led to not only an augmentation of the package, the combining of two reviews, an extension of the scheduled end of the programme but disbursement of the tranche by 2 September 2022.
That these policies were subsequently derailed and continue to be derailed by his successor, Ishaq Dar, must be acknowledged by the cabinet and the parliament and appropriate mitigating measures put in place or else the hapless public will continue to pay a heavy price. Last but not least, the incumbent finance minister has claimed that economic slide has been arrested and the negative trend has to be reversed soon. This newspaper wishes him success.
Copyright Business Recorder, 2023