Situation warrants no complacency

"The worst is over" is a popular phrase repeated frequently by the top functionaries of the present government these days to indicate that the economy of the country is now out of the woods. At a meeting arranged by Overseas Investors Chamber of Commerce and Industry (OICCI) in Karachi on 16th November, 2019, Adviser to Prime Minister on Finance, Dr Hafeez Shaikh, told the audience that "dark days are behind us" as obvious signs of economic turnaround have emerged due to efforts of the present government towards the revival of economy. The bourse has stabilised, current account (C/A) deficit is being managed, State Bank of Pakistan has not been intervening in the market and 16 percent growth in tax revenues and 31 percent growth in Inland Revenue are clear harbingers of an upward trend in economy. As many as 1.9 million people were under the tax net in 2018 and the number has soared to 2.7 million in 2019. The federal government has doubled the budget of social safety net programmes to provide relief and improve quality of the poor segments of society but many subjects of quality life such as healthcare, good education, poverty alleviation, etc., come under the ambit of provincial governments. The government is providing subsidy to exporters and encouraging local industry to flourish, besides reinforcing institutions. The central bank has been given autonomy, FBR has been put under a person from the private sector and powers have been delegated to Executive Committee of the National Economic Council (ECNEC) and Central Development Working Party (CDWP). The business community, in turn, requested Dr Hafeez Shaikh to showcase Pakistan at the international level by focusing on ease of doing business.

It may be recalled that this is not for the first time that economic managers have painted a happy picture of country's economy. For the last few months, the top policymakers of the economy, including the Prime Minister, seem to have been convinced about the turn of events for the better and repeating the same mantra to vindicate the thrust of their policies and outwit the opposition parties about the superior quality of their economic management. The government authorities have been very much encouraged to make such positive comments about the economy, particularly after the last IMF review meeting which concluded that all the conditionalities under the Fund programme prescribed to be met till September, 2019 have been fulfilled and the way is now clear for the disbursement of the second tranche under the arrangement. Besides, it also needs to be recognised that the present government has to bear the brunt of mismanagement of economy by the previous government and take tough decisions to stabilise and revive the economy and it has shown little reluctance to take the bull by the horns. Most of the observations made by the Adviser to the Prime Minister on Finance are definitely true and not very much off the mark. For instance, the current account (CA) deficit is being properly managed, stock market has now, more or less, stabilised, foreign exchange reserves of the country are on the up, exchange rate of the rupee has not shown wide fluctuations or depreciated further, growth in tax revenues has been appreciable and tax net has been considerably widened. However, while most of these gains are obvious and go to the credit of the present government, there are many economic weaknesses which still continue to persist and are decidedly difficult to overcome. For example, total indebtedness of the country continues to grow due to the wide gaps in both external and fiscal sectors of the economy, the rate of inflation continues to be higher, tax receipts during the current year are much lower than projected at the beginning of the year, the growth rate of economy has gone down, public sector enterprises (PSEs) have neither been restructured properly nor privatised to provide relief to the budget, unemployment is going up despite introduction of various programmes by the government to reduce it, industrial activity in the country is slowing down and more and more people are slipping below the poverty line. The hardships faced by the average households have certainly grown since the inception of the present government. It is clear that the fruits of macroeconomic improvement take time to reach people.

However, despite these shortcomings, we certainly appreciate the concerted efforts of the present government to stabilise the economy at a great political cost but to propagate that the economy is in a recovery phase is rather premature and raises expectations of the people at large for the provision of more relief. The industry also tends to demand more concessions, thus undermining the efforts of the government to raise more revenues to balance the budget. In our view, the government knows fully well that severe and immediate problems of the economy are over but it is yet not at a stage to backtrack on reforms and mitigate the difficulties of the common man. We are, however, sure that such a stage will be reached in the near future if we stay the course and reform efforts are continued over time.