The Ministry of Finance (MoF) has started a very good practice since March 2020 of preparing a monthly report with the latest economic update and outlook. The Economic Adviser's Wing prepares this report which is put on this federal ministry's website. The last report is for December 2020.
The objective of this report is to provide an assessment of short-term trends in key sectors of the economy. This should provide useful information to investors in the stock market and other economic agents performing different functions in the economy.
This objective can only be achieved if the report has comprehensive coverage and presents an objective and credible analysis of both positive and negative trends in the economy. The economists in the Economic Adviser's Wing must ensure a high professional standard of analysis and resist efforts to convert the report into a statement only of achievements by the incumbent Government.
The format of the monthly report on economic update and outlook is in the form of five sections respectively on international performance and outlook, monthly performance of Pakistan's economy, economic outlook, way forward and statistical annex of economic indicators. Of course, the contents of each section varies from month to month.
The December issue focuses in the section on international performance and outlook on the latest trends in various indicators of the level of economic activity at the global level, the change in various key stock market indices, movement of major currencies and change in prices especially of commodities which have a significant share in either Pakistan's imports or exports. In addition, it will be useful to show the changes in interest rates like LIBOR and the Central Bank policy rates, including those of major South Asian countries.
Occasionally, a summary may be presented of major reports prepared periodically by the leading international multilateral institutions. For example, the IMF has released the World Economic Outlook Report of October 2020. This report contains very useful projections of output, trade and commodity prices at the global, regional and country level.
Also, a brief analysis may also be presented especially in terms of implications for Pakistan of major international developments like the recent large free trade agreement in East Asia and the process of debt relief and special financing arrangements globally after COVID-19.
The second section on monthly performance of Pakistan's economy has been appropriately broken up into seven sections respectively on the real sector, rate of inflation, fiscal, monetary, external sector, performance of KSE Index and the Social Sectors. In the first sub-section there is surprisingly no mention of the output from Kharif crops like cotton in which there has apparently been a big decline in arrivals.
The report for December does highlight the improved performance of the large-scale manufacturing and construction sectors. However, there is monthly information which is available on sales of petroleum products from Oil Companies Advisory Council (OCAC). This enables an analysis of trends in the transport, agriculture and power sectors. Also, an indication of the development in the volume of trade can be obtained from data on cargo handled at Karachi port.
The sub-section on inflation needs to show the monthly rise in the consumer price index by major groups of items, by rural and urban areas and by income group. All this is available in the monthly CPI and weekly SPI prepared by the PBS. The implications thereof need to be highlighted, even if this means some negative findings.
The fiscal sub-section is very self-congratulatory in character. The relatively slow growth in tax revenues in relation to the growth in tax bases like value added in large-scale manufacturing and the rupee value of imports is not highlighted. Also, no mention is made of the increase up to October in Federal current expenditure of 17 percent compared to budgeted growth of 6 percent for 2020-21. Further, there should be a review of the type of financing of the deficit that has taken place. Currently, the reliance on domestic bank borrowing is much higher than envisaged in the budget. A note of caution is essential here in view of the downstream inflationary implications. Also, the monthly movement in yields on PIBs and Treasury Bills should be highlighted.
The monetary section has been written in a more objective manner. In particular, the lack of buoyancy in overall private sector credit demand at this time of greater uncertainty has been appropriately highlighted. The positive development of the increase in money supply more in the form of bank deposits compared to the currency in circulation ought to have been also highlighted. Also, growth in credit to SMEs, small farmers and housing should be reported.
The fifth sub-section on the external sector is an important sub-section. Divergent trends in exports between the numbers reported by the PBS and SBP ought to have been examined. One important piece of analysis is missing of the financial account of the balance of payments which has gone into deficit for the first time after the 2nd Quarter of 2013-14. Further, there is need to reconcile the numbers of gross and net inflows into the General Government Account given by the Economic Affairs Division and the SBP respectively.
The final sub-section on Social Sectors contains details on some of the social protection programs, either expanded or launched after COVID-19. But there is a big data gap on spending on the different social sectors, especially education and health. Why has the PRSP Secretariat in the Ministry of Finance not finalized these estimates for 2019-20? Are they likely to show a fall in expenditure and this is the reason why the reporting has been delayed?
The last section on Economic Outlook is overly optimistic and economic revival is 'ensured' despite the second wave of COVID-19. Some of the major problems are not highlighted like the big failure of the cotton crop, the likely bottleneck in the winter months to industrial production due to the gas shortage and the runaway growth monthly in the circular debt of the power sector.
Overall, there is need to appreciate the efforts of the Ministry of Finance in bringing out the Monthly Economic Update and Outlook. However, the Economic Adviser's Wing ought to make a more balanced assessment of economic conditions also highlighting some of the emerging and persistent structural problems. This will aid in the process of more timely and effective policy making and action by the various line Ministries and Divisions.
(The writer is Professor Emeritus at BNU and former Federal Minister).
Copyright Business Recorder, 2021
The writer is Professor Emeritus at BNU and former Federal Minister
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