This is with reference to Dr Ashfaque Hasan Khan's article, "Sit-ins and economy" carried by Business Recorder on 3rd November 2014 in which he has raised the question whether sit-ins or dharnas adversely affected the economic activities in the country. The sit-ins were staged at D-Chowk where no business or commercial activities take place. He further stated that much before dharnas the economic activities had lost momentum.
The writer appears to be too simplistic in asserting that these dharnas have had no impact on the economy, completely ignoring the role of expectations in the working of the markets and investors' and consumers' sentiments as well as economic indicators, all of which are sensitive to economic environment, especially of a country like Pakistan where, on the one hand, the country is fighting war against terrorism and, on the other, facing challenges of natural calamities and IDPs. To look for the damage of dharna in the vicinity of containers is to deny its existence. This politics has massively undermined investors' confidence, stopped the nascent economic recovery, tarnished the image of the country (remember take-over of the parliament and PTV buildings) and sent negative message to the world.
Pakistan's economy witnessed muted growth during last six year, lost confidence of investors, high fiscal deficit, energy shortages which had shaved off growth as well as issues pertaining to bleeding public sector enterprises, low tax revenues and higher fiscal deficit. The economy had just started to recover as it witnessed a growth of 4.14 percent during 2013-14, highest during last six. The budget deficit remained 5.5 percent during 2013-14 against 8.2 percent in 2012-13, an unprecedented fiscal adjustment in country's history without a cut in the development spending which rose from the budgeted Rs 425 billion to Rs 441 billion. The LSM sector grew by 4 percent in 2013-14 almost at par with previous year. Our development partners and independent agencies, such as IMF and the Moody's, have recognised all these positive developments, while Moody's recently upgraded Pakistan's 'negative outlook' to 'stable'.
The economic recovery nurtured in the last 14 months began to be undermined due to long march/dharnas. The two immediate casualties were stock market and exchange rate. Even though the stock market has now fully recovered and is scaling new heights every day, the loss of stability in the exchange rate remains there, as the rupee depreciated by 4% and meant a capital loss in public debt of nearly Rs.240 billion. The most serious loss to the economy was due to delay in the conclusion of the 4th Review under the IMF programme, as Pakistan could not launch the all too important transactions of divestment of OGDCL shares and issuance of Sukuk within the stipulated deadline of 30th September 2014.
In the absence of launching these two transactions, our targets for reserves, net domestic assets and government borrowing from the SBP were missed. Including the postponed tranche of $550 million, the country lost arrival of expected foreign exchange flows of $2.5 billion that further contributed to weakening the overall economic momentum the new government had engendered since its start in June 2013.
However, due to perseverance and commitment, the government has arrested the declining trends in all economic indicators as the public has dissociated itself and completely rejected the disruptive politics of dharna and long march. The economy is now getting back on track. The successful completion of 4th and 5th Reviews on 8 November under the IMF programme is the biggest testimony to the fact that the economic reforms agenda of the government is on track and that the economy is moving along the path charted in the light of the new government's economic agenda. The rejection of insufficient bids of OGDCL at a throw-away price was also a reflection of government's confidence that it can meet the targets based from the divestment of OGDCL through other sources and that the country should wait for a more opportune time to sell these shares.
In terms of the claims made by Dr Khan, he uses a combination of true statements, unsubstantiated accusations, and suspicious arithmetic. Let us turn to some of his other claims using a combination of true statements, unsubstantiated accusations and suspicious arithmetic.
First, the 2012/13 deficit indeed included some one-off expenditures to clear circular debt but there is not sinister design and does belong largely to delayed payments over the last several years; second, the 2013/14 deficit included some one-off revenues, but again there is nothing sinister about it as ties over the fiscal adjustment process that depends on revenue enhancement in a robust fashion mainly through tax revenues.
Third, the government gave money to PSEs but also took it back as revenue (probably true). But this has no effect on the deficit, since it is an expenditure as well as revenue. It is also not uncommon when clearing circular debt to do this (that's why they call it "circular").
Fourth, it is simply false to claim that the SBP profits were misstated. The SBP did transfer additional profits compared to 2012/13, but they mostly consisted of the additional profits generated by the privatisation transactions of UBL (which was under SBP ownership) and true higher profits due to higher lending to the government itself (another circular transaction). Moreover, there is nothing sinister or unusual about asking the SBP to pay profits from the previous year if they exceeded last year's budgeted amount.
Fifth, it is not simply false but malicious to claim that the government lied about using grant money to finance development spending. The money is safely available in an SBP account. At an appropriate time it will be used for development spending. Most importantly, the IMF deficit target is measured excluding grants so it has no impact on the program target of 5.8% of GDP, which was significantly bettered at 5.5% finally at the year-end.
Finally, he claims that the "true" total deficit for 2013/14 is 8.4 percent of GDP, not 5.5. This is pure fabrication and a fig of his imagination. He reaches this conclusion by taking off one-off revenues. Just because revenues are one-off, doesn't mean they don't count. Every government has one-off revenues every year. Then he takes out the Saudi money, which wasn't in our deficit measure to begin with. (The deficit with the Saudi money was actually 4.7% of GDP.) Third, he adds the stock of circular debt to the deficit 2013/14 confusing not only cash and accrual, but stocks and flows. Much of the 2012/13 and book-adjustment of 2013-14 stock was left over from the previous year, not new, hence adding something outside government obligation is untenable.
By misrepresent government accounts the author has simply concocted a picture that may sure exist in his mind but not in reality. He has served as Economic Adviser and knows quite well that government accounts are never tempered with for painting a misleading picture.
The Ministry of Finance
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