State of economy

After his appointment as the Adviser to the Prime Minister on Finance, Revenue and Economic Affairs Miftah Ismail is reported to have invited suggestions and asked top officials of different departments to come up with proposals to put the economy on a sustainable track.
All divisions were asked to brief him about their workings and suggest measures to improve the health of economy. He expressed his resolve to strengthen economy and advance the objective of sustainable and inclusive growth with a focus on enhancing exports, increasing economic growth and broadening the tax base and lower the rates.
If his assertion is taken on face value, all of this can be perceived as a good start to get to know the team and gain their confidence. The real test is on ground for a leader to prove his or her metal.
Dar too started on a promising note and helped stabilize the national economy for the first three years of his tenure after 2013, but he fell short to capitalize on the initial gains to achieve economic sustainability.
The prime reason was his failure to manage to push through the key factors influencing the sustainability of economy. The foremost being the governance of the economy which remained riddled with gaps, draining out the good money to support bad money and vested interests driven by political considerations.
Being the federal minister in charge of the Privatisation Commission, Dar could not influence privatisation nor restructuring of the loss-making business entities in the public sector. Entities like PIA and Steel Mills were allowed to continue to bleed the country's exchequer. Same goes for the power utility companies in the public sector that too were allowed to continue to be loss making entities on account of mismanagement, inefficiency and corruption. Inflated and non-affordable energy bills led to rendering our industry and exports uncompetitive in local and global markets. Our industry today is in a state of de-industrialization and we are becoming more of a nation of traders.
The power supply chain comprising the fuel delivery entities, power utility companies in the public sector and IPPs in the private sector continues to characterized by a massive circular debt. There are many similar cases of the good money drain for a bad cause.
Ease and Cost of Doing Business global ranking of Pakistan in the region has declined to 148 out of 200, hurting exports and FDI prospects.
This mode of economic governance manifested itself in trade deficit, depleting our foreign reserves. If not arrested, imports are expected to jump to $ 60 billion with exports hovering around at best at $25 billion thereby widening the trade deficit in the current financial year.
Country's exports in fiscal year 2018 are recorded to be the lowest in the past six years. However, imports are the highest in the same period. Fortunately, remittances of $20 billion by overseas Pakistanis continue to be a savior.
It is understandable that much of these deeds are outside the direct influence of the Finance Minister but fiscal management of the country is dependent on all these influencing factors.
Similar concerns are expressed by the business leaders of the country.
"Currently, the most pressing issue being faced by the industry is the high cost of doing business. It has not only hurt external trade but also shut down large-scale industrial units across the country," said Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Zubair Tufail.
FPCCI's former president S. M. Muneer has said that "the foremost issue that Ismail has to tackle is declining exports and soaring imports."
Dar in his tenure did well in successfully negotiating the IMF loans, which, supported by the grey and non-documented economy of the country, spurred economic activities enabling Pakistan to achieve a commendable GDP growth of over 5.5 percent - the highest in the last decade. Moreover, he was able to help maintain the strength of Rs against $ at Rs 105 for a good four years. Pakistan's global ranking moved up from Frontier Market to Emerging Market.
But due to lack of structural reforms and fiscal discipline, the fundamentals remained weak and economy could not sustain the trajectory of higher growth. The loans secured failed to fill the fiscal gaps and generate more revenue. While the burden of loan escalated, Pakistan's means to pay back could not catch up.
Due to weak economic fundamentals the economy of the country swings on sentiments driven by politics.
With the start of the political turmoil in March 2017, largely driven by the Panamagate, the economy of the country also started to dwindle. The stock market has nosedived from 53,000 points to 38,000 points. The real estate market declined by over 20 percent and so did other sentiment-driven economic contributors.
These are the real challenges for Miftah and his team to tackle with a view to achieving sustainable economic growth.
The best the present financial management team of the government can achieve in the remaining five-year tenure is to contain the economic decline through better fiscal and economic governance.
(The writer is a former President of Overseas Investors Chamber of Commerce and Industry)