EDITORIAL: In a report titled “World Economic Outlook 2023 Navigating Global Divergences,” the International Monetary Fund (IMF) projected Pakistan’s growth rate for the current year at 2.5 percent – the same projection as contained in the Stand-By Arrangement (SBA) documents uploaded on the website in July 2023 after the staff-level agreement was reached on 29 June 2023 and Board approval granted on 12 July after all prior conditions had been met by the then government.
This projection is clearly dated and in all likelihood will be revised downward as and when data till end-September is shared with the Fund, as required, in order to reach a staff-level agreement on the first review of the SBA especially in light of the recent downgrade by the World Bank to 1.7 percent.
The 2.5 percent growth projection for the current year is one percent lower than the 3.5 percent growth projected in the 9 June 2023 budget at a time when the ninth review of the Extended Fund Facility programme was pending.
Finance Ministry officials informed Business Recorder that the government has not revised the 3.5 percent budgeted growth rate down. Two observations are in order. First, the SBA documents project GDP growth for last fiscal year at negative 0.5 percent against the government’s optimistic rate of positive 0.3 percent - a difference that sets the base for the growth projections for the current year by the two entities.
And secondly, it is relevant to note that there is no divergence in the 6.1 percent growth rate cited for fiscal year 2021-22 between the government and the Fund estimates. This raises serious questions about the possibility of data manipulation by the then Finance Minister Ishaq Dar – a practice that he was accused of during his previous tenure (2013-18) as he reportedly downgraded the growth rate from two years before he was appointed as the finance minister to show that the growth rate during his tenure outperformed the rate during the previous six years.
Recent government data supports the World Bank’s downgrade of Pakistan’s growth rate: credit to private sector, the engine of growth, declined by 222.8 percent July to end August this year, which contributed to large-scale manufacturing sector registering negative 10.3 percent growth for last fiscal year (with the June figure even more concerning at negative 15 percent) and Public Sector Development Programme, another pro-growth item, received only 22.53 billion rupees for development projects in July-August and in spite of the extremely narrow fiscal space Ishaq Dar approved 131 billion rupees for parliamentarians’ discretionary schemes equivalent to 15 percent of the July-August budgeted allocations.
Inflation continues to soar - from 27.4 percent in August to 31.4 percent in September - in spite of the visibly effective crackdown on speculative activity in the foreign exchange market (which accounts for a significant rupee strengthening – a trend that is clearly continuing) and on smuggling of key commodities.
This leads one to conclude that the rise in inflation may be less attributable to illegal activity by the unscrupulous private sector profiteers and more due to flawed government policies, particularly the sustained failure to slash current expenditure (raised by 26 percent this year from the revised estimates of last year), and raise revenue through widening the tax net – decisions whose implementation would reduce not raise the budget deficit, another highly inflationary policy.
Sadly, in July this year fiscal deficit rose by 7.3 percent against July 2022. And to make matters worse the shortfall between expenditure and revenue is being met through borrowings whose costs are rising as a component of current expenditure.
The economic impasse is clearly deepening in this country and the path out of it is through taking informed policy decisions rather than relying on data manipulation. It is, therefore, about time the government undertook structural reforms, especially in the energy and tax sectors, without any further loss of time.
Copyright Business Recorder, 2023