According to the United Nations Development Programme (UNDP) latest report titled "Development Advocate Pakistan (DAP) on Financing for Development" the performance of our key macroeconomic indicators should be a source of serious concern to the country's economic managers. The list is exhaustive: (i) our share in the global market has declined from 0.15 percent to 0.12 percent while both India and Bangladesh have doubled theirs; (ii) Pakistan's exports financed 80 percent of imports in 2000, however in recent years, it has declined to 50 percent; (iii) Pakistan needs to attain exports to Gross Domestic Product (GDP) ratio of 10 percent which would enable the country to slash its borrowing requirements by 50 percent which in turn would enable the country to manage its external account without stress; (iv) loss of competitiveness, a penal tax regime, energy shortages, bureaucratic hassles, high import tariffs and lack of co-ordination between various government tiers constrains exports; (v) fiscal policy has not met the objective of inclusive growth; (vi) tax collection is 11 percent of GDP while capacity is estimated at 22.3 percent of GDP; (vii) inefficiencies in Discos and fiscal losses, failure to restructure loss-making entities and/or privatise them is a drain on scarce resources; (viii) deficit would rise with a massive rise in repatriation of profits (estimated at over 2 billion dollars), external debt servicing and disappearing of the Coalition Support Fund; (ix) agriculture sector is in the doldrums not only due to a fall in the international commodity prices, as claimed by the country's economic managers, but also due to flawed domestic policy and institutional constraints; and (x) federal government is saddled with inflexible expenditures including defence, debt repayment, pensions and salaries while it is assigned only 40 percent of the taxable revenues.
This is a rather damning indictment of the economic performance during the four years of the Sharif administration and at complete odds with the narrative presented by the Federal Finance Minister Ishaq Dar as well as the newly-appointed Governor of State Bank of Pakistan who stated that the economy remains in an "expansionary phase" - a claim that is simply not in accord with the UNDP report, or the recently released International Monetary Fund (IMF) report or Moody's recent issuer or indeed what this newspaper has been pointing out for the past three years. Our and international entities' apprehension has been and remains with respect to the burgeoning current account deficit that contrary to the Ministry of Finance's narrative is not only due to the flawed policies of the Ministry of Commerce but also its own flawed policies that include an overvalued rupee, delay in refunds and a range of taxation measures, energy shortages and institutional bottlenecks that penalize the productive sectors. This is, however, not to absolve the Commerce Ministry of blame and it may be recalled that the standing committee of parliament on commerce rightly held it responsible for not finalizing a preferential trade agreement with any country for the past four years or in presenting a strong case to convince the Prime Minister to force the Finance Ministry to amend its flawed policies that are impediments to exports.
What is interesting about the UNDP report is that it focuses on percentages of GDP rather than on total amounts which reflects a steadily declining trend in major macroeconomic indicators and, at the same time, challenges the outcome of reforms that were undertaken under the three-year Extended Fund Facility (EFF) with the IMF particularly in the energy and tax sectors. This newspaper repeatedly pointed out during the EFF that the Fund staff were simply not vigilant in predicting the extent of the decline in exports and a rise in imports due to government policies and therefore failed to set time bound actions (inclusive of not 'managing' the rupee value and releasing refunds on time) as a tranche release condition. The UNDP report also mentions the need to empower local governments and in this respect pays tribute to the Khyber Pakhtunkhwa (KPK) government while diplomatically pointing out to the Punjab Chief Minister that dynamic personalities like his may push through changes but institutional strengthening would ensure the continuation of those changes. One would hope that the PML-N administration in the centre and Punjab takes cognizance of this report and in its light takes appropriate mitigating measures. Unfortunately, though scepticism prevails on this account as the Dar-led Finance Ministry continues to present a narrative on the state of the economy that is increasingly divorced from ground realities.
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