Economy: putting a positive spin

Prime Minister Yousuf Raza Gilani has pledged what his Advisor on Finance Dr Abdul Hafeez Sheikh himself has been saying: "no new tax". In fact, there has been no imposition of a new tax albeit an attempt to introduce a value-added sales tax which failed. Taxing wealth is retrogressive if the wealth or asset has been created after payment of taxes. Unfortunately, gift tax and death duty have been abolished in the name of being un-Islamic, even though they are taxes on wealth not created from ones own sweat and blood. With sales tax on services, income from agriculture and other taxes such as: Property or motor vehicle outside the ambit of the federal government, as per the constitution, there is very little the federation can do to impose a new tax. But it could consider imposing a asset-creation tax if the asset was purchased from non-taxed income. But then the PM pledged would be broken. It is very usual for the economic managers of the country to highlight only the positive developments in the economy during their briefings to the political leaders, particularly the Prime Minister and the President, of the country. This practice has been going on for a long time and the present economic team also does not seem to be immune to this temptation. According to a news item in the "Business Recorder", Prime Minister, Yousuf Raza Gilani was informed in a meeting with the economic managers that the projected growth rate for the current fiscal year was 3.6 percent, but it was likely to exceed the target because damage to the crops in Sindh by floods was less than expected. Tax collections by the FBR at Rs 975 billion during the first seven months of FY12 were higher by 26 percent than the corresponding period of last year and the target of Rs 1952 billion for the whole year was likely to be achieved. Expenditures during this period were 53 percent or 5 percent lower than 58 percent last year. Also, PSDP of Rs 300 billion was likely to be met in its entirety and Rs 221 billion were released for development projects during the year so far. The PSDP covered important projects such as the Diamer-Bhasha Dam, the Mengal Dam Raising Project, the Neelum Jehlum Project, the Lowari Tunnel Project and several national highways. Exports had increased by 7 percent to dollar 14 billion while remittances had registered a rise of 21 percent to reach dollar 7.4 billion. The inflation rate was likely to be less than the budgetary projection of 12 percent and the three price indices ie the CPI, WPI and SPI were approaching single digit. The Prime Minister is reported to have provided guidance to the economic team for the forthcoming budget, emphasising in particular a focus on policies on economic stability, prudent fiscal policy, generation of economic opportunities for the youth and protection of vulnerable groups through further control of inflation and social safety net programmes. Even a cursory look at the main points in the said briefing is enough to reveal that the economic managers were eager to concentrate only on positive aspects of the economy and the assessment presented to the Prime Minister was not comprehensive. For instance, it was not enough to say that the growth rate of the economy was likely to exceed the target of 3.6 percent. Such a statement could be true but the real issue is that a growth rate of less than 5 percent was not going to make much difference to the quality of life of ordinary people and it needs to be enhanced substantially by improving the security situation, removing energy shortages etc. The projection of the GDP behaviour in this way might have prompted the Prime Minister to think about the ways to remove the impediments to growth rather than be satisfied with the present situation. Similar is the position with fiscal aggregates. Even if the FBR target of Rs 1952 billion is achieved, most of the analysts agree that the overall fiscal deficit of the country (including bailout packages for the loss-making PSEs and provisions for circular debt) is going to be much higher than the target, with the result that the government would continue to resort heavily to bank borrowings to finance the budget deficit. Also, price pressures are likely to increase in the coming months due to upward adjustment in domestic oil prices driven by increase in prices in the international market, rise in the procurement price of wheat, depreciation of the rupee and printing of more currency notes. To say that the inflation rate would be in single digits or around 9 percent or so is also not a solace to the common man because it would still be much higher than a tolerable level of less than 5 percent or so. The most glaring omission was probably related to the external sector. Exports and home remittances as highlighted by the economic managers are only components of the external sector accounts. It is the overall current account balance of a country which reflects the real picture. We are certain that the economic managers are aware that the C/A deficit during July-January, 2012 has reached dollar 2.63 billion as against a negligible deficit of only dollar 96 million registered in the comparable period last year. Such a high level of deficit is bound to adversely affect the exchange rate, price situation and foreign exchange reserves of the country in the coming months. It is difficult to say why the economic managers of the country are generally shy of telling the bitter truths or revealing unfavourable developments in the economy but the sad reality is that these cannot be hidden for long and tend to become apparent with the passage of time in the form of increasing unemployment, higher level of poverty, persistent pressure on prices and prevalence of more misery. May be that the present practice could give temporary satisfaction, but it is certainly counter-productive in the sense that the political leadership, after hearing that the economy is in a good shape, would like to avoid harsh measures and initiate projects and proposals that are likely to yield political dividends. Also, giving a positive spin to the selected indicators to be more closer to the top leadership of the country appears to be rather unprofessional for the economic managers and bureaucrats of the country. Such an attitude needs to be changed. It will definitely be in the interests of the country if professionals working for the government are more objective in their assessment and the men at the helm do not get irritated by listening to the factual position which, at times, may be unpleasant. The PM's direction to devise a strategy to create 100,000 jobs in the field of Information Technology is very doable, but it can only be done at the provincial level. Land records can be digitised. Massive data input will be needed along with scanning of land records. This would require a workforce of more than 100,000 in all the four provinces. The payback would be several-fold. Residential and commercial mortgages would kick-off bringing tremendous benefits in the shape of employment and the construction industry would benefit along with 50 other allied industries. Copyright Business Recorder, 2012