Stabilisation versus growth

The present government does not boast or is shy of stating the truth about the economy of Pakistan. In a meeting of the National Assembly Standing Committee on Finance, the Minister of State for Revenue, Hammad Azhar acknowledged openly that the GDP growth rate target during the current year would be missed by a 2 percent; and there will be only 4.2 percent growth. The slowdown in growth is due to stabilisation required to mend the precarious economic situation created by the policies of the previous government. PML(N)-led administration had injected dollar 25 billion into the market to maintain the exchange rate at a particular level during the last five years that had resulted in a profoundly huge jump in C/A deficit from dollar 2.5 billion to dollar 19 billion during the tenure of the previous government. When the present government came into power, the most immediate need was to arrange dollar 12 to dollar 13 billion in order to meet the financing gap in the external sector. Additionally, Rs 400 billion circular debt was created by the previous government while gas companies' operations also went into deficit. Responding to the Senate Committee members about revenue shortfall, Hammad Azhar said the government suffered a shortfall of Rs 100 billion from telecom sector following suspension of tax collections on mobile phone cards, Rs 150 billion due to adverse revenue measures by the previous government in its last budget and Rs 25-30 billion from adverse revenue measures in the tenure of caretaker government. In the finance bill amendments in September 2018, measures were taken to compress imports and boost exports. Home remittances had also shown a growth of 12.22 percent. These measures would help the government deal with the C/A deficit in the coming months. However, some members of the Committee, including Ahsan Iqbal, Aisha Ghaus Pasha and Nafeesa Shah criticised the government policies and did not agree that the country had come out of financial crisis. They referred to SBP reports which, according to them, have shown that all the vital indicators were heading towards slide.
We agree with most of the observations made by the Minister of State for Revenue in the National Assembly Committee on Finance. These observations were largely precise to the point and reflected true picture of the country's economy. There could be hardly any disagreement that the desire of the previous government to quicken the pace of development had destabilised most of the indicators of the economy and if these policies were continued, the economy would have suffered immensely and reached a point where twin deficits of the economy would have become unmanageable. The previous government almost went on a borrowing spree from all kinds of sources to delay the inevitable without realizing that stabilisation and growth are not exclusive and growth can really be accelerated in the medium- to long-term in an environment of stability.
Coming to the actual state of the economy, the claim of the previous government that the economy recorded a growth rate of 5.8 percent during FY18 was exaggerated and the latest data released by the FBR indicate a lower growth rate of 5.2 percent. The present government has, however, prioritized stabilisation over growth which is the right approach. Although the government has lowered the growth target to 4.2 percent, the SBP is of the view that it could be only 4.0 percent due to contraction in the large-scale manufacturing (LSM) and decline in the production of major Kharif crops. This growth would be much lower than the target of 5.8 percent for the current year and 5.2 percent realized in the previous year. However, some of the stabilisation measures taken during the last few months are taking hold. C/A deficit is narrowing, albeit gradually, and authorities have managed to avoid the threat of insolvency. The monetary policy is much more proactive and the SBP is prepared to cushion the expansionary impact of the fiscal policy to contain the inflation rate within reasonable limits. However, all the issues of the economy have not yet been resolved and more has to be done to ensure higher growth with stability. It may be noted, nonetheless, that if the ongoing Pakistan-India conflict persists or escalates, the economies of both the countries could be destabilised and suffer immensely, with highly negative repercussions on the lives of ordinary people in particular.