Economy on the move

A number of global institutions has described country's current economic progress as satisfactory and encouraging. The Director General Central and West Asia, Asian Development Bank, Werner Liepach, on a visit to Pakistan last week, lauded the steps taken by the government of Pakistan for steering the country out of difficult economic condition towards stability. He highlighted the fact that under the Financial Infrastructure Programme, the bank has contributed significantly towards construction of water resources, particularly barrages, in Pakistan.

Also last week, The Moody's Investors Service upgraded Pakistan's credit rating outlook to stable, with an accompanying report highlighting country's robust growth potential.

The announcement, which pushed Pakistan's stock market above 40,000 points, also affirmed the Government of Pakistan's local and foreign currency long-term issuer and senior unsecured debt ratings at B3.

"The change in outlook to stable is driven by Moody's expectations that the balance of payments dynamics will continue to improve, supported by policy adjustments and currency flexibility," said Moody's while announcing the change. "Such developments reduce external vulnerability risks, although foreign exchange reserve buffers remain low and will take time to rebuild." It added that while fiscal strength remained low due to currency devaluation, ongoing fiscal reforms were expected to mitigate risks related to debt sustainability and government liquidity.

However, while Moody's praised Pakistan's growth potential and effectiveness, it noted that fiscal strength would remain weak over the foreseeable future due to structural constraints to economic and export competitiveness and the government's low revenue generation capacity.

Most significantly, the country's trade deficit dipped by 33.04 per cent in the first five months of current fiscal year from a year ago, as per the data released by the Pakistan Bureau of Statistics (PBS).

Also, the tax base has significantly broadened which will have a positive impact on tax collection volume, which may not happen this fiscal year but in years to come.

The leading economists of the country have however raised the red flag of caution while acknowledging progress in some key economic indicators.

The issues under focus are inflation and unemployment, leading to more people falling below poverty line.

Dr Hafiz A Pasha, one of country's leading economists, is reported to have stated that the national poverty ratio, which was 31.3% in June 2018, would sharply jump to over 40% by June 2020.

In absolute terms, people living in poverty will increase from 69 million in June 2018 to 87 million by June 2020, indicating 26% increase in poverty or an addition of 18 million people.

"The situation is very alarming due to an economic growth rate that is close to the population growth rate and an exponential increase in prices of perishable food items," said Dr Pasha while addressing print media.

The economists also advocates that the incumbent government should also give weightage to 'supply-side economics.' According to Wikipedia, "supply-side economics is a macroeconomic theory, arguing that economic growth can be most effectively created by lowering taxes and decreasing regulation, by which it is directly opposed to demand-side economics.

"According to supply-side economics, consumers will then benefit from a greater supply of goods and services at lower prices while employment will increase.

"The Laffer curve, a theoretical relationship between rates of taxation and government revenue which suggests that lower tax rates when the tax level is too high will actually boost government revenue because of higher economic growth, is one of the main theoretical constructs of supply-side economics."

Today, undoubtedly, the issue which haunts the government most is inflation, poverty, unemployment, sluggish foreign and local investments, exports and a dire urgency for business transactions and money circulation.

Strangely, institutions like the IMF, World Bank, ADB, by and large, remain silent on socioeconomic indicators like poverty, inflation and other socioeconomic reforms. One argument suggests that the filter-down effect of improvement in macroeconomics will ultimately cascade down to take care of the socioeconomic factors for the poor segments of population.

But, there is a great possibility that in our part of the world, which is riddled with poor governance, this phenomenon may not happen; and on the contrary, the rich may get richer and the poor poorer as has happened, for example, in many countries such as Egypt. Pakistan's history in this regard is hardly different from Egypt's.

The situation, therefore, underscores the need for greater focus on both macroeconomics and supply-side economics.

(The writer former President of Overseas Investors Chambers of Commerce and Industry)