What's going on?

Advisor Commerce tells us government has managed economic stabilization. What he does not tell us is what precise measures the government has taken in this regard. When we surf the government's reforms stratosphere, we see little evidence. Advisor Commerce had also promised us a brand-new Industrial Policy, a policy badly needed for investments and economic growth, as well as for revival of exports. Its contours were to be shared by January. It seems to have become yet another item on the 'missing in action' list. We also do not know where Government of Punjab's Industrial Policy, promised with great certitude, is hiding.
That diligent man for all seasons, the Advisor on Reforms and Austerity, seems to be keeping his best for the closing overs. He has formidable talents, but we are yet to witness the fruit of his endeavours. His cabinet colleagues are clearly not on the same page. Meanwhile, the morale of the civil service continues to plummet.
One would have imagined 'austerity' to be the easier part of his mandate: there are so many obvious candidates among government's many divisions and agencies for downsizing, even closure. What are we waiting for? Does the politics of it defy change? Perhaps, the next edition of Governing the Ungovernable will provide greater insights.
But one area where we see austerity is in support to business. Textiles Division has invited Textile Associations to Pakistan Textiles Export Promotions Event (30th April 2019) for "business matching, for the sellers to meet ambassadors and commercial attaches". For this "golden opportunity" each Association has been asked to make a 'contribution' of half a million rupees. You can't possibly get cuter than this! Also, the Textiles Division seems to have overlooked that Ambassadors and Commercial Attaches are in the business of selling their countries' products, and not promoting our exports.
The Finance Minister tells us the worst is behind us; the fundamentals have been secured and now we are heading towards a turn-around. Numbers, however, tell a different story. Fiscal deficit, financed by borrowings from banks/SBP, is growing, some think to alarming levels. Foreign exchange reserves are less than what they were in August 2018, despite substantial infusion of loans from friends. Circular debt seems unstoppable, and the loss-making State Enterprises continue to bleed. Tax revenues remain considerably below target with few signs of catching up.
We keep hearing great things will happen now that tax policy has been separated from tax collection. Well, we see no evidence of this separation. The last we checked Rules of Business have not been amended to reflect this change - and we continue to see the unmistakable picture of the amiable and energetic Chairman FBR in all those policy-related meetings, often chaired by the PM.
One area where victory has been declared is improvement in the current account balance. Indeed, it has contracted by 22% during the July-Feb period. That is impressive; except worrying signs surface when we drill deeper. Exports have not grown (neither goods nor services). Despite all the 'import management' Import of Goods is at almost the same level as last year. SBP's July-Feb 19 figures put the trade deficit in goods at $19,282 billion, as against $19,839 billion last year.
Foreign Investments, the other major source of dollar inflows, seems to be going nowhere.FDI is down 23%, and overall foreign investment is 73% lower than last year. It is essentially Workers' Remittances (up $1.5 billion) and savings on Import of Services ($1.4 billion) that account for improvement in the Current Account Balance.
We accept it is unreasonable to expect a miraculous turn-around in so short a period; but it is not unreasonable to expect a sense of direction. We fully empathise with the government for the challenges it inherited, but then they should be careful with their promises. The fact remains after eight months we do not have even the road map: If there is one it is surely a tightly guarded state secret.
The protracted negotiations with the IMF (yes, the government admits these are still going on, and that 'differences are narrowing') seem to confirm Government does not have a road map that is not full of pitfalls; a huge disconnect between promise and reality.
The government has massively devalued the rupee (some argue it has swung to the other side in REER - real effective exchange rate - terms), has substantially upped the interest rates, has incorporated the Surmaya company (with FMs hand-chosen friends on its Board) to handle PSEs better, and has 'rationalised' gas and electricity prices. This is the standard entry ticket for an IMF bail-out.
If we have already met IMF's minimum threshold level, or prior conditions in IMF verbiage, what is keeping us away from inking the agreement? More so when on the foreign policy front we are doing our best, rightly so, to get the US on our side, or at least to blunt their opposition to a reasonable IMF deal.
This is where number differences come in. This is where the roadmap becomes too wonky to be bought by the IMF. This is where the twin deficits, fiscal and current, become the bone of contention.
IMF would find a fiscal deficit of 5% plus unsustainable. On the expenditure side there is little room for manoeuvre. You can get to an acceptable level of fiscal deficit only through a huge revenue generation effort. Doing so has political costs. You would need to tax agriculture that has an almost 20% share in GDP but only a negligible share in tax revenues. You would need to do away with all kinds of exemptions that will hurt vested interests. You would need to increase GST rates that won't go too well with your constituency.
Then there is the Surmaya company. Is that really the coagulant to PSE haemorrhaging? There is the energy sector and the circular debt. Privatize the DISCOS like now; raise rates (further) like yesterday.
On the external front, the IMF stance is likely to be "OK, you don't want to devalue more because it will have an inflationary impact, and you don't want to hike interest rates because it will be anti-growth, but tell us how you propose to balance the numbers?" If IMF is not giving its nod it is because it too is unsure of what's going on.
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