The real economic performance of interim govt

As the new government takes the reins, we are well placed to examine the efforts and output of the interim government that enjoyed an unprecedented seven-month tenure. On the face of it, it would seem that the interim government has made significant strides economically.

Getting the IMF (International) programme back on track, stabilizing the PKR/dollar rate, managing inflation and growing the exports are some of the key metrics being cited. However, once we begin to scrutinize these metrics a significant disparity appears between what transpired and the claims by some self-promoting ministers and their associates in the media.

With regards to the IMF programme while negotiating and bringing it back on track was of paramount importance, the interim government seems to have done so by simply agreeing to every single condition put forth.

This would appear to be less negotiation and more capitulation and the terms laid out have begun to result in deindustrialization within the country. In the long term this would exacerbate the CAD (current account deficit) while simultaneously increasing the already depressing unemployment rate.

With regards to the dollar stabilization, the USD-PKR rate on the 15th of August, 2023 was 288 whereas it was 279 on March 1st, 2024. While this on face value seems like an improvement, the REER (real effective exchange rate) deteriorated from under 100 to 109 during this period.

This is strongly indicative of an artificially managed PKR-USD rate which negatively impacts the country’s export competitiveness. The management of the USD has occurred through two prominent avenues; primarily, the curtailment of imports as well as crackdown on cross-border smuggling initiated by the armed forces.

Let’s turn our attention to the increase in exports and examine it closely. Once we begin a deep dive into the numbers behind the increase, it is very quickly apparent that virtually all industrial exports have had declines. However, exports of agri-products, particularly rice, have done exceedingly well registering a growth of 76%.

Had this been by design it would have been quite a feat – however, it is by sheer chance that India had curtailed its exports and Pakistan was able to benefit. It had the dual impact of making goods scarcer at home and driving up already bloated inflation rates. If our agriculture exports slow down once India re-enters the market with our industrial exports already down, the dual-blow will significantly impact the country.

As of today, the domestic and commercial users of gas are carrying a significant pricing burden for the cross-subsidy for the fertilizer sector, unaccounted-for-gas losses and unplanned LNG purchases by the bureaucracy. These heads account for about 40% of the total price per MMBTU; thereby, making the gas price uncompetitive due to factors that could be managed and controlled effectively.

The textile sector continues to teeter on the brink due to this pricing. This coupled with one of the highest costs of electricity in the world is rapidly accelerating deindustrialization as mentioned above. The negative ramifications of the gas price increase would have been averted had the interim government stuck to its promise of bringing industrial electricity tariff to 9 cents in line with regional competitors.

Given the run-away inflation, a base rate of 22% and expensive cost of production largely on account of government administered prices of energy, one would have to question the metrics of economic successes being touted.

Unless concrete, structural measures are not put in place to reverse these trends, the inflationary effect on the economy will steer us towards negative growth cycles from our current stagflation. Given this, one is genuinely curious as to how pundits and ministers on various TV shows continue to take credit for ‘good’ performance.

Pakistan’s ability to remain afloat and avert a default while reliant on the IMF does not make it a hostage to it; the programme itself must be negotiated and attuned to the requirements of its people and the voices of the industry. There is a lot that Pakistan can do while within the IMF programme. Pakistan continues to need a balance in its position with the IMF rather than swinging between two polar opposites of Dar’s “No, disagreed” to Shamshad’s “Yes, agreed”.

Copyright Business Recorder, 2024