“One of the most important pre-requisite for higher GDP growth will be to raise the investment to GDP ratio to at least 20 percent in the next 5 years,” so promised the PML-N in its 2013 election manifesto. That ratio currently stands at 16.4 percent, according to the Economic Survey FY18, even after accounting for the so-called billions of dollars of investments under the CPEC.
The party might blame the security situation in the early years and political crisis in later years of its tenure for their poor performance. However, back in 2013 the party was confident wrote in its manifesto that “despite the unfavourable security and law and order situation, the investment climate can significantly improve with improved governance.” Those improvements have been largely missing.
While foreign savings, of which some in the shape of CPEC-driven inflows from China are increasingly financing domestic investments, national savings measured as percentage of the GDP have also been slipping since the fiscal year 2015. In FY15, national savings had hit a multi-year high of 14.7 percent; this year’s provisional number stands at 11.4 percent.
With domestic savings consistently tapering off over the years, it is natural for the saving-investment gap to start slipping towards grave zones. The gap for FY18 is estimated to be at negative five percent; inching closer to the FY09 levels. This growth in saving-investment (negative) gap has to lead to external instability by way increasing need for foreign borrowing and growing current account deficits.
The solutions for turning this dynamic around are many, and have been talked about at length in economic circles for some time. These including jacking up the private and public-sector savings by capital market and insurance sector reforms, and raising public revenues while selling off loss making public sector entities (PSE). Some of the solutions had also been promised by the PML-N, but they remain an unfinished agenda. (See also Census and the savings rate, April 7, 2016)
Items on the list of unfinished agenda, as promised in PML-N’s manifesto, include the failure to attract foreign investment in minerals, agriculture and livestock sectors “to facilitate exports of high value products to regional markets,” and the failure to convert “at least 50 percent of the remittances by overseas Pakistanis into investments,” by offering special financial products to Pakistani diaspora.
Then again, these are not the only items on PML-N’s unfinished agenda. It had promised to bring down budget deficit to 4 percent during its tenure. That target hasn’t been met. It had also promised to increase tax-to-GDP ratio to 15 percent by the end of 2018; one-third reduction in current expenditures; and reduction in PSE losses through revamping or privatizing of these institutions. None of these key economic revival targets promised in the manifesto have been met. This despite an experienced team, of which two have been clean-bowled now!
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