EDITORIAL: The Asian Outlook by the Asian Development Bank estimates growth in developing Asia at 5.2 percent in 2022 and 5.3 percent next fiscal year, projecting growth for South Asia at 7 percent in 2022 and 7.4 percent in 2023, adding that “in general, regional growth is being supported by a robust recovery in domestic demand in economies that are continuing to catch up with their pre-pandemic trend, particularly South Asia.
” Pakistan’s growth rate was the fourth highest in the region in fiscal year 2021 at 5.6 percent with the Maldives, India and Bangladesh ahead at 31.6, 8.9 and 6.9 percent, respectively. The high growth rate for the Maldives in 2021 is attributable to the very low base the previous year at negative 33.5 percent and what is extremely disturbing is that the same situation prevailed in Pakistan in 2020 with negative 1 percent growth. Bangladesh at 3.4 percent growth in 2020 was the only regional country that did not experience negative growth at the height of the pandemic with India registering negative 6.6 percent and Sri Lanka negative 3.6 percent.
Inflation in developing Asia was below the global trend in 2021, the ADB argues however Pakistan consistently registered the highest inflation rate in the region since 2019, including Afghanistan, at 6.8 percent in 2019, 10.7 percent in 2020 and 8.9 percent in 2021. It is projected to register inflation at 11 percent in 2022 and 8.5 percent next year. India registered 4.8 percent in 2019, 6.2 percent in 2020, 5.4 percent in 2021, 5.8 percent in 2022 and 5 percent next year. Sri Lanka with major debt issues today and food shortages coupled with price escalation registered 13 percent inflation in 2022 which is projected to come down to 6.7 percent in 2023 — lower than the projection for Pakistan at 8.5 percent.
Thus in spite of numerous claims to the contrary, Pakistan’s growth rate did not compare favourably with other regional countries and neither did the rate of inflation. The reason for relatively lower growth in Pakistan could be sourced to contractionary fiscal and monetary policies under the International Monetary Fund programme which accounted for the Fund projection of only 1.5 percent growth rate in 2020-21 — a rate that was curtailed further due to the onset of the pandemic.
Pakistan authorities then proceeded to undertake expansionary policies, monetary and fiscal, with the objective of minimising the impact of the pandemic on the general public — policies that fuelled inflation though they failed to provide the lift to growth that was anticipated partly due to a high discount rate relative to other regional countries at 7 percent and high debt payments (external and domestic) due to heavier than ever reliance on borrowing.
The narrative of the Khan administration that the economy at 5.37 percent, after rebasing, showed that the trend had reversed and the economy had achieved sustainability while embarked on a growth trajectory does not reflect the fact that it was a poor performer when compared to India and Bangladesh and closer in terms of performance to Sri Lanka than other regional countries.
And what must be a source of concern to the new economic managers is that global commodity prices are on the rise due to the Russian invasion of Ukraine with the ADB report projecting that “energy bills will rise for energy importers, pushing inflation up and weighing on demand. Energy exporters will benefit from rising prices. Russia and Ukraine are also key producers of sunflower seed oil, wheat, barley, corn and fertilizers.
And global prices for these products and certain substitutes have surged.” While Pakistan is heavily reliant on fuel imports to meet domestic demand yet their effects have been contained due to the 28 February relief package, however, the consequent impact on raising the budget deficit (through a significant increase in subsidies coupled with a decline in the budgeted revenue under sales tax and petroleum levy) is also an inflationary policy whose effects are visible in the economy. For the week ended 14 April 2022, the Sensitive Price Index year-on-year depicted an increase of 16.44 percent — well above the year average cited by the ADB.
The task at hand for the new economic team is extremely challenging: to implement pro-growth policies under an IMF programme which supports contractionary policies to contain the worsening gap in balance of payment, incur more external loans to raise foreign exchange reserves, reform the energy sector and withdraw exemptions while widening the tax net.
Copyright Business Recorder, 2022
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