Elections and the economy

Cabinet meetings are now ending on a bitter note with directions to Minister of Finance Dr Hafeez Sheikh to improve macroeconomic indicators that are most likely to impact on the outcome of the forthcoming general election particularly inflation and unemployment.
His response, we are told, is to place the blame for the sustained poor performance of macroeconomic indicators on his cabinet colleagues specifically on: (i) the Ministry for Water and Power for failing to improve governance and ensure that the intractable inter-circular debt is eliminated accepted as the major reason behind continued heavy loadshedding; (ii) Ministries of industries, defence and railways for poor governance leading to the need for large annual bailout packages for PSM, PIA and Railways that raise expenditure by more than what is budgeted; (iii) the war on terror for the inability to reduce military expenditure; and (iv) inability to reduce annual outlay on past local and foreign borrowings that include interest and principal as and when due which account for around a quarter of the budget outlay. And in all fairness Dr Sheikh is not wrong in his accusations. Be that as it may, as a member of the cabinet Dr Sheikh is equally, if not more, culpable given the portfolio he holds. Unlike his predecessors in Pakistan and counterparts in the rest of the world, Dr Sheikh does not address press conferences other than to answer a few questions put to him by journalists as he is leaving a venue where he is a guest. His last open press conference was the traditional post-budget press conference. However he did give an interview to the state-run television where questions asked were mild to say the least, hence no one really knows whether he reckons he is still engaged in fire fighting or has now begun implementing his economic vision. His supporters maintain that the reason for his reluctance to face the independent media is understandable given the appalling state of the economy, not for any fault of his own, which is in a tailspin and moving towards unsustainable indebtedness, and unemployment due to the many hours of load shedding.
The inflation rate has come down from 25 percent three years ago to 8.8 percent or so the Minister reportedly boasted to his colleagues during a recent cabinet meeting. This claim was challenged by his colleagues who correctly argued that the cumulative impact of a rise in the general price level since 2008 has left no one in their constituencies even aware that inflation has slowed. Dr Sheikh also failed to mention to his colleagues that the Pakistan Bureau of Statistics (PBS) changed the weight given to food prices while calculating the rate of inflation by disaggregating perishable and non-perishable food items from alcohol/tobacco/betel nuts and leaves: from the previous 40.34 percent to 34.8 percent and gave a separate weight to cigarettes and betel leaves, nuts of less than 2 percent. The reason given: consumption patterns have changed. Poverty levels have, it is reported, increased in Pakistan and the rising numbers of vulnerable are obviously spending the major part of any income they earn on perishable and non-perishable food items hence the claim of a change in consumption patterns does not appear to be supported by ground realities. It is imperative that the PBS under the Ministry of Finance explains what study was used to conclude that consumption patterns changed last year. One other statistic recently manipulated that needs to be taken into account is the budget deficit. In 2008 when the rate of inflation was 25 percent the fiscal deficit was 7.4 percent due to a rise in energy and food subsidies, and the growth rate was estimated at 5.8 percent with a total indebtedness of 6055 billion dollars. Today, the comparable figures are as follows: fiscal deficit for last year as per the International Monetary Fund is 8.5 percent due to a dramatic rise in energy subsidies (an amount that the Finance Ministry has not included as expenditure in its budget deficit calculation for the past three years), the growth rate slowed to less than 4 percent (a government forecast that is not likely to be realised), and the country's indebtedness was 12024 billion rupees by 31 March 2012. And while the Ministry claims that the country is within the 60 percent debt to GDP limit that was legislated in 2005 yet leaked documents suggest that the actual total debt to GDP percentage is around 61.3. The only redeeming aspect of our economy today is a rise in remittances that accounts for narrowing of the current account deficit to $919 million. However the rupee dollar parity continues to deteriorate and latest estimates show that it is now over 97 rupees while in 2008 the rate was 62.5 - a decline reflecting the deep economic malaise that Pakistan is suffering from prompting the Federal Finance Minister to seek prompt disbursement of invoices submitted to the US government under the Coalition Support Fund. That has been denied according to unconfirmed reports. There is one basic fact that Dr Sheikh must surely know by now: statistics however well a government may manipulate them are not going to be the yardstick used by the bulk of the population of this country to evaluate economic performance of the government in power not only because of high rates of illiteracy but because a householder - be he literate or illiterate - instinctively realises the value of each rupee earned whenever he goes to the market. Or in other words if each time the common man goes to the market he pays a higher amount for the same basket of goods then he is not going to be convinced by data that suggests that inflation has been halved. The government must delink PBS from Finance to ensure that its data is not manipulated.