Economic indicators in the right direction?

Federal Finance Secretary during the meeting of the Monetary and Fiscal Co-ordination Board, held under the chairmanship of his boss Federal Minister Ishaq Dar stated that the economic indicators are moving in the right direction. The press release of the meeting issued by the Ministry of Finance did not refer to any private sector member of the Board either challenging the data presented by the Finance Secretary or his claim that the economic indicators are moving in the right direction in spite of the fact that the Board included a well respected former Governor State Bank of Pakistan Dr Ishrat Husain. It is unclear whether the press release blanked out any criticism expressed during the meeting or whether no one actually voiced any criticism.
Be that as it may, it is extremely unfortunate that the Finance Ministry continues to stifle any criticism of its policies by independent economists/media by implying as if they have an anti-Pakistan agenda and refusing to explain/clarify/rationalise data that is not synchronised even when compared with data released by other government institutions. The ministry also frequently cites occasional favourable reports in foreign journals that understandably do not challenge the government-released contested data. There is a view and with valid justification that blank endorsement of all the economic policies, irrespective of their merit, at all national economic forums is a grave disservice to the people of this country as it has disabled the economic managers from taking timely decisions to mitigate poorly performing macroeconomic indicators. Two indicators that the government has been unable to manipulate are the rising trade deficit and a heavier reliance on borrowing to contain the budget deficit.
The trade deficit has been rising and unfortunately the onus of this is being placed on the Ministry of Commerce that has neither the financial wherewithal to implement its export promoting policies, including investing in research or has the power to change the taxation measures that are acting as serious impediments to exports. These powers fall within the purview of the central bank that is not yet fully independent of the influence of the Ministry of Finance. The rupee is overvalued by about 20 percent and has been maintained as such as per the International Monetary Fund (IMF), a fact that is reducing the rupee value of annual external debt service payments but at the same time is making our exports uncompetitive and imports cheaper. The much appreciated drive by the Sharif administration to implement large infrastructure projects, especially in the energy sector, at tariffs above the regional average is another factor that is being cited by exporters as negatively impacting on our exports. The Finance Minister is on record as solely focusing on the reduction in commodity prices as the reason for a fall in exports, a focus that disables the government from taking appropriate mitigating measures.
Net domestic borrowing by the federal government has escalated from Rs 7,674 billion in 2012, the last full year of the PPP-led coalition government to Rs 9,494 billion in 2013 (which includes Rs 400 billion rise in debt by Dar to retire the circular energy debt) to a whopping Rs 12,970 billion in 2016 - a 69 percent rise. External debt rose from $46.4 billion in 2012 (as per Economic Survey 2013-14) to $55.1 billion in 2016 (Economic Survey 2015-16) to $61.35 billion as per the State Bank of Pakistan website - a rise of 32 percent from 2012. This rise includes $4.6 billion Eurobonds/sukuk issued at almost double the global market rate, and two percentage points higher than the bonds issued by a debt-ridden Greece, and doubling of commercial short-term borrowing to $1.6 billion.
Governor SBP briefed the meeting by pointing out that credit to the private sector showed a growth of 11.5 percent though he did not quantify as to how much was due to the delays in issuing refunds, which enabled the government to show higher gross revenue figures, or to retire debt that was procured at higher rates of return.
The containment of inflation is cited by the government as well as the SBP as the outcome of their policies - from 11 percent in 2012 to 2.9 percent in 2016. Ignored is the fact that the dramatic decline in the international price of oil which partly accounts for under one percent inflation in the West - a major import item for Pakistan - would have reduced domestic inflation by more than what has been evident had not the government raised its reliance on tax revenue from the oil and energy sector.
And finally, there is much concern in the country about the government's inordinate focus on reducing the budget deficit which is having serious negative implications on growth. In the past two budgets presented by Dar, he had committed to implementing more growth-oriented policies but has so far failed to deliver. Without growth, revenue rise would have to continue to be from inequitable indirect taxes and with the provinces no longer willing to generate unrealistic surpluses to meet the federal budget deficit the past three years policies would come to roost with the price to be paid for by the general public. One can only hope that the Finance Ministry begins to revisit its flawed policies which would require acknowledging more realistic data.