EDITORIAL: State Bank of Pakistan (SBP) released its half yearly ‘State of Pakistan’s Economy Report’ (July-December 2023) on 19 May 2023.
The SBP analysis was limited to December 2022; however, data/statistics with usually a lag of no more than a month are constantly updated and shared with the general public by not only the SBP but also the Finance Division and the Pakistan Bureau of Statistics (PBS) on their websites and therefore one would urge the relevant SBP team to be more prompt in the delivery of their analysis so as to remain relevant.
This exhortation is especially relevant in the current context, given that it was not till around 27 January 2023 that Finance Minister Ishaq Dar was forced by the International Monetary Fund (IMF) to abandon two economically flawed policies that he implemented soon after he took oath as the country’s Finance Minister on 27 September 2022 – controlling the rupee-dollar parity that led to a reduction of around 2 billion dollar remittance inflows through official channels and a 110 billion rupee electricity subsidy to exporters in spite of the very limited fiscal space made all the more narrow due to the devastating floods last year.
The analysis limited to December also accounts for the projections made in the report being considerably out of synch with the current even worse economic impasse facing the country: (i) growth is projected at 2 percent in the report, which has since been downgraded to 0.8 percent as per the Debt Sustainability Analysis for Fiscal Year 2022-23 by the Economic Adviser’s Wing on the 1 May 2023 and uploaded on the Finance Division website; (ii) the national consumer price index (CPI) for the first half of 2023 is 25 percent while the figure cited by the PBS for July-April 2023 is 28.3 percent; (iii) exports even after the electricity subsidy registered negative 6.7 percent in the first half of the year; and July-April export figures released by the PBS show that exports declined by 11.68 percent compared to the comparable period of the year before; (iv) import decline during the first half of the current year is cited at negative 18.2 percent; however, the July-April percentage is 28.45 percent on the back of severe administrative measures that have crippled imports of raw materials and semi-finished products there by crippling private sector productivity; and (v) policy rate was 16 percent at the time which currently stands at 21 percent – a major factor in the upping of the budgeted domestic debt servicing payments, a major borrowing source as the IMF ninth review remains stalled which, in turn, is negatively impacting on pledged inflows from bilaterals/multilaterals.
This surge in government borrowing from domestic commercial banks has crowded out private sector borrowing, leading to a decline of 74.8 percent July-March this year compared to the year before and is yet another factor responsible for negative 5.6 percent large-scale manufacturing growth July-February this year and explains the massively revised downward growth rate.
Federal Board of Revenue (FBR) collections rose by 17.4 percent in the first half of the current year – a rate that rose by only 17.8 percent July-February (after the mini-budget was announced on 15 February, passed by the National Assembly on 20 the same month), a deceleration in tax collections that SBP half yearly report states is on account of temporary import restrictions, a reasoning that has been repeatedly cited by the media, economists and international lenders during the first half of the fiscal year till to-date.
The six-month report also claims that “the government has rationalised expenditures through contraction in subsidies and grants” – a claim difficult to substantiate at present, given that the expenditure reduction is largely on Public Sector Development Programme – a 31.7 percent reduction in July-February 2023 compared to the comparable period of the year before while current expenditure has risen by 75 percent compared to the year before.
The SBP’s half-yearly report maintains in its very first paragraph that “the fallout of flash floods, adverse global economic conditions, uncertainty surrounding the completion of the IMF programme’s ninth review, the foreign exchange constraints and political instability exacerbated the underlying domestic structural issues posing challenges to macroeconomic stability.”
While external factors are relevant yet it is disturbing that the focus of the report is on attributing the worsening economic impasse on political uncertainty and ignoring the persistent failure to implement politically challenging structural reforms while continuing to implement economically flawed policies which prompted the IMF (International Monetary Fund) last week to caution the government to stay on the macroeconomic policy framework agreed in February this year.
Copyright Business Recorder, 2023