EDITORIAL: Macroeconomic data recently released by the Pakistan Bureau of Statistics (PBS) merits immediate attention of the Caretaker economic team members — the Minister of Finance, the Adviser to the Prime Minister on Finance, and the Governor State Bank of Pakistan (SBP).
The data reveals: (i) 27.57 percent increase (YoY trend) in Sensitive Price Index for the week ending 17 August 2023, a rate that does not take account of the recent hike in prices of petrol by 17.5 rupees per litre and high speed diesel by 20 rupees per litre effective 16 August 2023 expected to impact on prices of perishables (farm to market) and non-perishables (from factory/port to market) as well as transport costs that in turn would further erode the value of each rupee earned while pushing thousands of families below the poverty line; (ii) large-scale manufacturing (LSM) sector suffered an output decline of 14.96 percent in June 2023 compared to June of last year with the July-June 2022-23 figure registering negative 10.26 percent growth when compared to the year before.
This negativity not only contributes to a low growth rate for the year (negative 0.5 percent – a rate comparable to the Covid 19 year of 2019-20) but accounts for a rise in unemployment that again has pushed thousands of families below the poverty line; and (iii) trade deficit declined from 2.73 billion dollars in July 2022 to 1.637 billion dollars last month but this must not be a source of complacency because it was because of severe administrative restrictions that led to a decline in imports (including raw materials that crippled the country’s LSM/productive sectors) — from 4.98 billion dollars in July last year to 3.7 billion dollars July 2023.
Exports declined from 2.25 billion dollars to 2.068 billion dollars last month and textile exports, a major export item for Pakistan, declined by 11.44 percent on a year on year basis, fetching 1.31 billion dollars against 1.48 billion dollars in July 2022.
Remittances, another desired form of earning foreign exchange, declined by 4 billion dollars last fiscal year compared to the year before. These two contractions account for the reserves being strengthened entirely through external borrowings, thereby providing no leverage in negotiating less harsh upfront conditions with either the multilaterals or the bilaterals.
While the caretaker economic team took oath on 17 August, less than a week ago, yet they were given no option but to hit the ground running and one would hope that with the start of the week some appropriate decisions need to be taken urgently that would provide some relief to the poor and vulnerable while ensuring that the overall growth rate is not compromised.
This would necessitate less reliance on the immediate success of foreign direct investment inflows, projected at over 20 billion dollars, monitored by the Special Investment Facilitation Council supported by civilian (federal and provincial) and military establishment or privatisation proceeds (given lack of appropriate climate) but through appropriate domestic policy measures within the policy constraints under the 3 billion dollar nine-month Stand By Arrangement with the International Monetary Fund.
These measures may include extending the tenor of domestic debt, which may provide immediate relief; however, it is relevant to note that while 2022-23 budget envisaged net domestic borrowing of 2835 billion rupees the budget for 2023-24 envisages 5031 billion rupees – a rise of 77.4 percent, which will almost certainly have negative implications on inflation as well as on the kitchen budgets of the middle to lower middle classes and of course even more on the poor and vulnerable.
While budgeted development expenditure will have to be disbursed as per the mandate of the caretakers; however, one would hope that the caretakers focus on reducing current expenditure, a highly inflationary policy, that strengthens elite capture (with only 3.5 percent allocated for Benazir Income Support Programme).
In this context sacrifices will have to be made voluntarily by the civilian and military establishment (though the massive raise in wages by the outgoing government no doubt for political reasons may not be reversible by the caretakers), yet one would hope for a massive cut in procurement expenditures.
Additionally, one would hope for a visible improvement in the performance of the power sector and a commensurate decline in subsidies that were budgeted at a whopping 894 billion rupees against total subsidy allocation of one trillion rupees in the current year (83.2 percent of all subsidies).
Copyright Business Recorder, 2023
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