EDITORIAL: Pakistan Tehreek-e-Insaf (PTI) launched a white paper on the state of the economy with party chief and former prime minister Imran Khan and former finance minister Shaukat Tarin addressing the ceremony claiming that the performance of key macroeconomic indicators was far better during their tenure than today.
There is no doubt that the Khan administration dealt with the Covid-19 pandemic very effectively, Pakistan had one of the lowest death rates in the region, however independent economists point out that the 6 percent growth in 2021-22 was fuelled more by the sale of inventories than reactivating the wheels of industry.
The growth of Large Scale Manufacturing sector can be sourced to the low base the year before as Covid-19 throttled economic activity in Pakistan as in other countries.
However, it must be acknowledged is that there was a positive fallout for Pakistan of Covid-19 on four counts: (i) it laid the ground for monetary and fiscal policy easing effective April 2020 through a suspension of the harsh upfront policies that were agreed with the International Monetary Fund (IMF) by the PTI economic team; (ii) a rise in official remittance inflows as the hawala/hundi source dried up due to global lockdown; (iii) exports rose to a historic high of 32 billion dollars; however, the rise was mainly attributable not to diversification or increase in quantity but to the rise in the price of major exports due to supply chain disruption resulting in a phenomenal increase in shipping costs, ensuing global recession that was exacerbated by the Russia-Ukraine war.
At the same time, the international prices of imports also rose which accounted for a steadily worsening balance of payment position by end 2021, leading to the current account deficit of 17.3 billion dollars last fiscal year – only 2 billion dollars less than what the Khan administration inherited in 2018; (iv) inflation remained a major source of concern during the Khan administration (largely due to the conditions agreed by the Khan economic team with the IMF) and was the raison détre of many PTI parliamentarians warning Prime Minister Khan that they are unable to face their constituents and will not win elections on a PTI ticket.
However, inflation was brought down dramatically through the announcement of an unfunded relief package by the then Prime Minister Imran Khan effective 1 March 2022 till the end of June which froze the prices of petroleum and products and electricity at a time when they were rising internationally.
This is widely believed to be the primary reason behind the IMF’s decision not to declare the seventh review a success – a delay which brought the prospect of default one step closer as even friendly countries had linked their pledged assistance to the Fund programme; and (iv) foreign exchange reserves were 16.4 billion dollars when the PTI left (11.4 billion dollars with State Bank of Pakistan) and have dwindled to 11.7 billion dollars (with 5.6 billion dollars held by the SBP) today. Irrespective of which party was in power this decline perhaps could not have been avoided as interest and repayment of principal became due especially as the government is already embarked on administrative measures to check and delay imports.
There are three major inaccuracies in the ‘White Paper’. First and foremost, the fiscal deficit was not 7.6 percent in fiscal year 2017-18 but 6.6 percent (the PML-N completed its tenure by end-April 2018) but in 2017-18 with Imran Khan taking oath as the prime minister on 18 August 2018.
In this context, it is relevant to note that irrespective of criticism of Ishaq Dar’s policies as the finance minister by independent economists for being an accountant by training he has always focused on balancing the books and therefore the fiscal deficit, be it at the cost of slashing development expenditure, was contained during his tenure. It was during the three years of the Khan administration that it remained above the unsustainable 7 percent in spite of the budgeted negative 4.9 percent in 2018-19.
Second, Tarin projected a negative growth rate for the current year. He needs reminding that in the first year of the programme (2019-20) the IMF forecast GDP growth at 1.5 percent in spite of agreement on implementing very tight monetary and fiscal policies. Covid-19 turned the positive into negative that year; however, today with project assistance, particularly under China Pakistan Economic Corridor (CPEC), as well the scaled down public sector development programme the growth rate is likely to be low but not in the negative realm.
And finally, the paper notes that whether the ninth IMF review is declared a success or not; inflation, unemployment and poverty will rise dramatically to a level not seen in this country before. Even though this is accurate yet one would have hoped that the paper had acknowledged that the situation would be worse if the IMF programme does not restart.
Copyright Business Recorder, 2023
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