‘GDP to shrink by 3pc’: Govt urged to initiate reforms to bring about economic stability

LAHORE: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) former president and Businessmen Panel (BMP) Chairman Mian Anjum Nisar has observed that without wasting any further time, the government should execute economic as well as legislative reforms to bring about economic stability, as the measures taken so far by the government have resulted in hyperinflation and high policy rates, increasing the cost of doing business in the country.

The Businessmen Panel (BMP) chief asked the government to focus on improving overall governance through structural reforms and austerity measures, as the economic losses caused by the catastrophic deluge might cross $30 billion, projecting inflation to touch 30 percent, with GDP growth shrinking by 3 percent to just 2 percent from earlier projected 5 percent for the current fiscal year.

He pointed out that for just $1.17 billion tranche from IMF, the government has imposed taxes of over Rs1,700 billion, agreeing to a free market economy, which does nothing better. He feared that floods might have caused over $30 billion economic losses and damages as the National Flood Response Coordination Centre has dismissed the initial assessment of $18 billion. Moreover, poverty and unemployment will go up manifold from 22 percent to over 36 percent. Some 37 percent population was hit by poverty after floods in 118 districts.

Quoting the data of the central bank, he said that the unemployment rate stood at 6 percent before the recent severe floods and added that the GDP growth would be reduced from 5 percent to 2 percent for the current fiscal.

Mian Anjum said that agriculture growth faced a much more severe impact in the aftermath of floods and the value addition of agro growth in the range of over Rs500 billion might evaporate in the current fiscal year. The agriculture growth target and services sector faced severe impacts.

The country’s GDP growth has been projected to evaporate by 3 percent and it will be hovering around 2 percent of GDP against the initially envisaged growth rate target of 5 percent set in the budget for 2022-23.

He said that the IMF loans seemed paltry in the face of the flood damage, which is estimated to be above $30 billion across the country. In comparison to the 2010 super flood, these floods have substantially affected crops and other agricultural products, further exacerbating food inflation and shortages. The austerity measures required by the IMF program will also be a significant burden on the population facing humanitarian crisis.

Unfortunately, we have utterly failed to achieve a sustainable higher growth, reform our tax system to tap the real potential. The overwhelming part of tax collection is anti-growth, based on regressive measures to overburden the existing taxpayers.

The fundamentally flawed policy of relying on debts has made the economy extremely vulnerable to external shocks and any force majeure event. To date, the economy is managed in an ad-hoc manner, where we look forward to economic assistance from global lenders and friendly countries every year to meet fiscal gaps. This is a highly lamentable attitude. Because of this, neither have we been able to expand our resources and inflows, nor curtail wasteful expenses and unnecessary outflows.

The challenging economic situation globally, coupled with catastrophic floods, has made the situation worse for Pakistan. Due to aggressive policies of the incumbent government and in the wake of this natural calamity, inflation is at its highest in our history. Now, the unprecedented rainfalls, floods and landslides have wiped out agricultural lands, livestock, and critical infrastructure.

Rural living is highly affected; people are very much dependent on agriculture and livestock for their livelihood and this situation can trigger a new wave of poverty and a national food emergency. It is estimated that only in the province of Sindh more than 1.2 million acres of agricultural land is affected.

The preliminary report showed that the overall loss in GDP growth would be 3.3pc to 3.7pc due to the floods. But if the losses are revised upwards to $40 billion, the economy will contract. The interim report showed that about 20pc of the PSDP, or Rs218 billion, would have to be diverted towards disaster relief expenditure, resulting in an additional unemployment of 600,000 due to low spending.

Flood damages to crops, livestock, infrastructure and the expected slowdown in economic activities will have implications for the external sector. Pakistan is a victim of global warming, although its contribution is less than 1 percent.

Copyright Business Recorder, 2022