Imran Khan at Davos

Prime Minister Imran Khan while addressing the moderated non-plenary session on Pakistan Country Strategy Dialogue at the World Economic Forum at Davos stated that his administration has successfully stabilized the economy and is now consciously planning to promote growth of industries across the country. He proceeded to lament the flak his administration received from the local media with respect to implementation of stabilization policies (defined as a dramatic over 70 percent decline in current account deficit sourced to import compression with a consequent negative impact on tax collections and not through desired export promotion in actual dollars) and praised his economic team led by Special Advisor to the Prime Minister on Finance, Dr Hafeez Sheikh, and Governor State Bank of Pakistan, Dr Reza Baqir, both of whom were present in the session.

This newspaper has been pointing out the runway food inflation, currently estimated at over 20 percent by the Pakistan Bureau of Statistics that is seriously compromising the value of each rupee earned and particularly impacting on the poor and the vulnerable. The reasons are all related to the ongoing fiscal and monetary policies: (i) an undervalued rupee to the tune of over 4 percent in November as per SBP data which makes petroleum and products imports more expensive for industry but also on the average household income earner through a major impact on farm to market transport of perishables, other items and people; and the 500 rupee additional quarterly allocation to the Benazir Income Support Programme beneficiaries is unlikely to enable them to purchase the same amount of items as before. (ii) a high discount rate, 13.25 percent, which has further compromised the capacity of the productive sector to borrow though it is attracting "hot" money, an undesired form of portfolio investment, and that too not in the stock market but in government debt securities; (iii) an unrealistic fiscal target that is compromising industrial output (with Chairman Federal Board of Revenue Shabbar Zaidi recently stating that the manufacturing sector is overly burdened in taxes); and last but not least (iv) a steady rise in utilities' rates is rendering domestic production uncompetitive even in the domestic market (smuggling has reportedly risen across our porous borders with the recent wheat price rise being laid at the doorstep of smuggled wheat to Afghanistan). The government's policy to provide electricity at 7 cents per unit all inclusive has, through a notification of the Power Division, been revised to include fuel adjustment charges as well as other surcharges raising serious concerns amongst industrial units including exporters.

However, the Prime Minister remains completely sold on the efficacy of his economic team's and, as stated by Dr Hafeez Sheikh during several of his press briefings, growth will pick up momentum in 2020. One would suggest that the Prime Minister peruses the following documents: (i) the IMF July and December 2019 programme documents that project the GDP growth rate for the current year at 2.4 percent, 3 percent next fiscal year, 4.5 percent in 2021-22 and 5 percent in the last year of the programme. These projections are based on a range of assumptions, including further rupee erosion with some estimating it as high as over 170 rupees to the dollar (which would in turn impact on domestic inflation), a high discount rate which would dampen economic activity further and compromise FBR's capacity to meet the targets agreed with the Fund leading to a greater reliance on privatization (which if past precedence is anything to go by maybe stalled in the courts) and stable external conditions especially relating to our largest import item - petroleum and products - which maybe a tall order given the fact that the Muslim Middle East remains embroiled in conflict leave alone the powerful non-Muslim players.

We would suggest some serious tweaking in the ongoing monetary policies (the rupee must not be undervalued and a discount rate that does not render borrowing prohibitive) as well as fiscal policies (tax structure must be rationalized) and a reduction in the current account non-development, non-social protection budget. There is no doubt that the Prime Minister's narrative is sourced to the briefings that he receives from his team, however, it would be to his benefit if he would as a matter of course also solicit views of independent economists of note outside his administration, that would serve to verify the narrative that has repeatedly been trotted out to him.