State of the economy

Four and a half months after the Pakistan Tehreek-e-Insaf (PTI) formed the government at the Centre there has been no good news on the economic front. Market uncertainty continues to prevail in Pakistani bourses and the productive sectors. The incentive package for exporters announced by the PML-N administration, continued by the PTI government with an additional monetary incentive of lower electricity tariffs, has yet to translate into a narrowing of the current account deficit; exports rose by only one percent, probably less than what the package cost the treasury, while import growth has declined due to the lower international price of oil, a Godsend for the PTI as it was for the PML-N administration, but with a slowdown in projects under the umbrella of the China Pakistan Economic Corridor (CPEC), gross domestic product (GDP) growth has been compromised and with it employment opportunities have decreased.
Large-scale manufacturing growth shriveled to 0.65 percent during July-October 2018 in contrast to 6.24 percent last fiscal year. And incentives to the agriculture sector announced by the PTI government have yet to produce positive results. The rupee's tumble continues and it is mainly propped up by the parking of 3 billion dollars by the Saudis and another 3 billion dollars expected from the United Arab Emirates (both to be repaid within one year) and a 2 billion dollar commercial short-term loan from China which would also be payable in months. In other words, the reserves have been/would be propped up by borrowing for one year and concern is deepening over how the government would tackle major challenges facing the economy that it inherited after the year is over.
Prime Minister Imran Khan's argument that his government would focus on strengthening the construction industry, through building 5 million houses for the poor, which has the capacity to fuel more than 30 associated industries, has so far not been implemented. Be that as it may, the construction industry that should have reacted positively to this stated policy has not done so. Analysts maintain that as the construction industry is known for attracting undocumented tax evaded wealth and given the daily threats by members of the cabinet, including the prime minister, that there would be severe penalties for those who have failed to declare their wealth, perhaps there is a need to consider yet another tax amnesty scheme. The scheme announced by the Abbasi-led government in April and extended by the caretaker setup till 31 July failed to attract the target group because it was announced by an outgoing government. This would no doubt be strongly resisted by the Prime Minister himself who has repeatedly stated that he would not approve a scheme that allows the "thieves and tax evaders" to pay a small percentage of the tax they evaded and legitimize their ill-gotten wealth.
Be that as it may, the Prime Minister and his team have tacitly acknowledged, through several U-turns they have been compelled to take, that their scathing criticisms against a sitting government while in opposition are seriously at odds with being in government. The supplementary budget envisaged revenue generation from sources that were simply not doable, a shortfall of 170 billion rupees has been projected for the first six months of the current year, prompting the Minister of Finance to increase petroleum levy (not part of the divisible pool that is shared with the provinces) on petrol by 42 percent and for high speed diesel 126 percent per litre) and to announce that he would present a mini-budget mid-January. The government's inability to check current expenditure rise accounts for slashing development expenditure, even for the water sector, and tax reforms that would render the structure equitable and non-anomalous have yet to be shared with the public.
To conclude, there is no strategy or indeed plan that has been announced yet that would provide a comfort level to the productive sectors and perhaps it is time for the Prime Minister to consider whether his select economic team has such a plan, and if so if it is implementable; and more importantly how much time can he politically afford to give his team to prepare and then implement a plan given the rising inflationary pressures eroding disposable income, decline in industry output, rising unemployment and gas and electricity shortages?