The present government's performance has been very poor and it missed all the macroeconomic targets excepting fiscal deficit during the first quarter of the current fiscal, said former finance minister Hafeez Pasha.
Pasha was speaking at the event organised by the Institute for Policy Reforms to review the country's economic performance for the first quarter (July-September) fiscal 2014-15 as well as the government's economic performance scorecard vis-a-vis objectives set in the 2013 elections manifesto.
Pasha said that the current fiscal year would close with fiscal deficit of 6 per cent and inflation would be around 6 to 6.5 per cent, which is lower but still on the higher side given the decline in prices of oil and essential commodities in the international market.
The former finance minister criticised the government policies and stated that fiscal deficit was achieved in the first quarter by squeezing release of development funds which was only 8 per cent against the benchmark of 20 per cent releases.
He said that the government decision to impose regulatory duty on wheat and sugar as well as increase electricity prices would contribute to inflation. He pointed out that the international wheat price declined by 20 per cent while its price in Pakistan is on the rise. He said that price of flour would go up by 8 per cent due to the government decision to impose regulatory duty on wheat.
Pasha regretted that when the price of sugar in the international market was on the decline, the government increased sugarcane price to Rs 170 to Rs 180. International commodity prices have declined in recent months, but these were yet to be transmitted to domestic prices, he added.
Pasha stated that for the fiscal year 2014-15, the government set an ambitious growth rate of over 5% and foreign exchange reserves equal to three months import. However, the first quarter outcome was somewhat disappointing. Agriculture production has been affected by the floods and all other sectors show sluggish progress. Large-scale manufacturing and electricity supply have seen slow growth (under three percent) while exports declined by over 5% in the first quarter.
Pasha said that investment is very low and private credit grew by Rs 5 billion in the first quarter as opposed to Rs 32 billion in the same period last year. He said that it is unclear how the government plans to deal with the uncertainties in both political developments as well as the possibility of a hiatus in the ongoing International Monetary Fund (IMF) programme.
He hoped that the Fund's Executive Board would release the 1.1 billion dollar fourth and fifth tranche. Tax collection remains a concern. The first quarter receipts alone showed a shortfall of Rs 49 billion. Outlook on growth is uncertain. The economy was unlikely to achieve the targeted growth rate of 5%. He forecast a growth rate of 3.5 to 4% for the current fiscal year. Public finances targets too were uncertain. The fiscal deficit target will worsen if tax collection continued to slip and the energy circular debt was not settled.
The IPR forecast a fiscal deficit of 5.5% to 6% of GDP higher than the target of 4.9%. The BoP improvements were contingent on IMF's decision on the next tranche. If that was postponed again, the rupee value would decline despite increase in home remittances. Investment would also fall short of target at an estimated 14% to 14.5% of the GDP.
In reply to a question, Pasha said that furnace oil declined in the international market and the government should decrease power tariff, however it was further increased with imposing equalisation surcharge. Pasha said that unemployment rate in the country is about 10 percent contrary to the government claim of 6-7 per cent. Chairman IPR, Humayun Akhtar Khan stated that the country's economic growth rate is a source of concern. He added that for a number of years economic growth has remained much below four per cent and there seems to be no improvement in the first quarter of the current fiscal year.
In response to a query, Pasha said that the Finance Ministry is dominating not only in the financial sphere but also political sphere. He said that poverty has been increasing by three million annually and since 2008 middle class has been shrinking. Pasha added that middle class, which was 45 per cent of the total population during Musharraf rule, has shrunk to 30 per cent of the total population; and in South Punjab alone there are 2 million idle youth, which can be attracted to crime and militancy. Pasha deplored what he claimed was the Pakistan Bureau of Statistics gaining the status of gauging and creating statistics at present.
About the privatisation process, he said that the PML-N manifesto was to improve the performance of loss-making state own enterprise through restructuring and there is no mention sale of profit making institutions, like OGDCL, PPL etc, shares.
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