Pakistan: growth projections

EDITORIAL: Asian Development Bank (ADB) in its regular publication Asian Development Outlook lowered Pakistan’s growth projection to 1.9 percent from the April 2023 projection of 2 percent and raised the inflation projection to 25 percent from the earlier 15 percent.

ADB’s April projections were no doubt dated but nonetheless were extremely baffling as: (i) the growth projection was premised on expected success of the staff-level agreement on the ninth review under the then ongoing Extended Fund Facility programme of the International Monetary Fund (IMF), which was never achieved; and (ii) inflation registered a high of 31.5 percent in February, 35.4 percent in March and 36.4 percent in April.

Be that as it may, there is a misplaced tendency in Pakistan to lend credence to projections of multilaterals as opposed to government projections (even though multilaterals rely on data compiled by national entities as they do not have the necessary numbers/manpower on the ground – data which is routinely manipulated though the extent of manipulation depends on the incumbent finance minister.

However, data compiled by independent domestic economists who are in the best position to tabulate data from different sources was sadly ignored by the ADB economists. It is relevant therefore to note that the growth rate for 2022-23 as per credible independent economists is not 0.3 percent but in the negative realm ranging from between negative 0.5 to negative 1.5 percent and the IMF website, perhaps with more competent assessors and/or with more up to date data, has estimated the 2023 growth rate at negative 0.5 percent and for the current fiscal year at 2.5 percent (which is subject to implementing the agreed conditions).

The lower growth rate for last fiscal year would necessarily imply that the base is much lower than anticipated and therefore the growth rate may well vary by at least a percentage point from the ADB forecast.

The inflation projection for last fiscal year was projected at 34 percent by the IMF, nearly 9 percentage points higher than the ADB estimate, but the projection for the current year is 16.2 percent by the Fund (again premised on implementing all the Stand-By Arrangement conditions).

That the crackdown on currency speculators is strengthening the rupee, which will lower the consumer price index; however, there is concern that the operation may continue till inflationary pressures ease to a level acceptable to the public rather than reflect a market-based exchange rate, which in turn would seriously compromise the success of the first review under the ongoing SBA scheduled for the end of the year with data for the first quarter of the current fiscal year (July to September).

The ADB report opined that “political stability following general elections later this year, if achieved, will boost business confidence as will the standby arrangement agreed with the IMF in support of economic stabilisation and rebuild fiscal buffers.” Two observations are in order. First, the ADB, like other international financing institutions, does not have qualified staff to analyse political developments and their possible fallout on the economy.

This is particularly so in Pakistan’s case where a complex political environment is a challenge to read for domestic political pundits, leave alone economists reliant on general textbook observations. In the event that a Pakistan Muslim League-Nawaz (PML-N)-led government is installed after the next elections, as is being widely speculated, there is a possibility that the party leader insists on Ishaq Dar getting the finance portfolio again – a portfolio that he has done little justice to so far.

Secondly, and equally importantly, the capacity of the public to bear the brunt of taxation measures under the mantra of generating some needed fiscal space is severely compromised given that (i) more than 80 percent reliance is on indirect taxes as a source of revenue whose incidence on the poor is greater than on the rich; and (ii) administrative measures agreed under the SBA that pass on the onus of sectoral inefficiencies on to the hapless public. Thus there is a real danger of unrest escalating into violence on the streets – a fact that would compel all political stakeholders to abandon some of the key conditions agreed with the Fund.

What is required for the economic team leaders (caretakers as well as their more legitimate successors) to formulate out of the box strategies which must end the elite capture of not only budgetary allocations but also the sources of revenue. In other words, structural changes are required though since the approval of the SBA on 12 July 2023 there has been no evidence of any such changes.

Copyright Business Recorder, 2023