Increasing frailty of economy

Federal Finance Minister Ishaq Dar, while addressing Pakistan Air Force officials at Pakistan Air Headquarters reiterated the non-partisan mantra that trade not aid is the government's guiding principle. It is extremely unfortunate that State Bank of Pakistan's data reveals that during Dar's one and a quarter years as the country's economic tsar, loans have risen dramatically, reflected by the rise in government borrowing domestically and internationally to the highest levels ever while exports have declined.
Foreign loans increased during last fiscal year as the PML-N government took the country back on an International Monetary Fund (IMF) programme. The 2008 IMF programme procured by the PPP-led coalition government was suspended in 2010 because of the failure of the government to deliver on two key agreed conditions relating to politically challenging reforms in the power and revenue sectors. With the suspension of the IMF loan multilaterals as well as bilaterals ceased their programme lending/budgetary support thus with the decision to go back on the IMF programme automatically led to a rise in loans from these other sources fuelling the stock of foreign loans.
Central government gross external debt rose from 45.6 billion dollars on 30th June 2013 to 49.4 billion dollars in 2014. A rise in external debt of 3.8 billion dollars in one year is nothing to scoff at, and is well above the average (0.7 billion dollars) for the 65 years before the PML-N government came to power a third time around. Public sector borrowing domestically rose from 124 billion rupees during July-September 2014 in marked contrast to negative 471 billion rupees last year no doubt as the need to procure domestic loans rose after the IMF fourth review was inconclusive.
Recently, the government indicated that it would be unable to raise tariffs as per the agreement with the IMF because of its potential impact on attendance in the ongoing dharnas by Pakistan Tehreek-e-Insaf and Pakistan Awami Tehreek. Critics, however, argue that the PML-N government, like its predecessor, remains focused on compelling those who already pay their electricity bills to pay higher tariffs to cover the cost of sectoral inefficiencies including the failure to improve receivables that have risen from 80 to 90 percent as well as high transmission/distribution losses well above the regional average, which the government claims have improved by an insignificant 0.5 percent. Sixteen months down the line may not be long enough to bring the under-construction generation plants on to the national grid but it is sufficient to have made a difference in terms of improving recoveries and reducing losses. In this context, the focus of the Minister for Water and Power on more than one meter at the residence of Imran Khan (3) and Shah Mehmood Qureshi (6) is inexplicable especially given that the Prime Minister's residence in Jati Umra has 43 meters. Be that as it may, there is evidence to suggest that the fourth quarterly review is inconclusive and one of the reasons is clearly government's failure to raise electricity tariffs by 7 percent as earlier agreed with the Fund. A Business Recorder exclusive revealed that sale of OGDC on the market as well as access to the already collected Gas Infrastructure Development Cess were the other two IMF concerns, which are likely to be met.
Making those who pay electricity bills to cover the sector's inefficiencies is akin to our tax policy that relies on existing taxpayers (salaried people) to pay more while allowing the rich landlords heavily represented in our national and provincial assemblies to keep the farm income tax low. Such an inequitable and anomalous tax system has prevailed in this country since Independence and continues to this day.
Statistics on the SBP website also reveal that (i) current account balance between July-August 2013-14 was negative 58 million dollars while for the comparable period in the current year it is negative 1372 million dollars; (ii) trade balance registered negative 2675 million dollars between July-August 2013-14 and negative 4159 million dollars in the comparable period this year; (iii) net borrowing was negative 555 million dollars last year and negative 1365 million dollars between July-August 2014-15.
To conclude, the Finance Minister has frequently displayed a tendency to overstate his performance premised on the release of flawed data and to make statements that are simply not rooted in reality. While no one can fault the logic of promoting trade and not aid yet the enabling environment is lacking and exporters are complaining about their failure to take full advantage of the GSP plus status granted by the European Union because of rising energy bills and sustained heavy loadshedding that make their products uncompetitive internationally. While this is not to discount the economic cost of the ongoing dharnas yet to absolve himself of all responsibility for the increasing frailty of economy that has raised poverty in the country does not give a confidence level to the general public.