The national economy seems to be weak as income distribution is in favour of the rich, unemployment and non-core inflation is on the increase and data on revenue receipts and expenditure raise questions of transparency.
Dr Kaiser Bengali, managing director Social Policy and Development Center, making media presentation on State of the National Economy - 2004 at his office on Thursday said: "There are questions regarding the data, which raises unease relating to transparency, plausibility and reliability of various reports on national economy." The media presentation of the state of national economy is a regular feature of the SPDC. It takes place a little after the federal budget has been announced.
He said that the current account balance surplus also raises some concerns. The trade and services balances remain in deficit, which have actually increased. The combined deficit for FY2004 amounts to $3,017 million. "Private unregistered transfers are in surplus of $4386 million (of which, remittances constitutes $1369 million or 66 pc), to provide the current account surplus of $1,369 million."
He said that as has been the case in previous years, the current account surplus is not attributable to the performance of the domestic economy, but exclusively to factors that lie outside the country's economy.
Bengali said that remittances, the principal source of the current account surplus, has shown a decline of about 10 percent and there are no signs of its improvement in the near future.
He said that this year methodology of preparing budget has been changed with any notice in advance. It has created confusion and made interpretation of figures difficult. "Had the method been explained earlier, it would have been easy to interpret data in detail," he added.
He said that purchasing power of the rich has increased by 33 percent whereas the purchasing power of the poor has gone down by 7 percent.
He said that it was for the first time that the development expenditure has exceeded the defence budget but by all standard it should be around 5 percent of the total amount of the budget. "At the very minimum at least 5 percent of GDP needs to be allocated for development expenditures, implying a minimum allocation of RS 255 billion in FY2004 prices, with employment generation, housing, health and education being treated as priority sectors for allocation of development funds."
INFLATION: Bengali said that inflation has gone up as against the claim of the government. "The government calculates it as core-inflation after excluding prices of flour, petroleum products, power rates etc. If all these factors are taken into account, which in fact should be, the inflation has gone up. Look at the 16 percent increase in wheat flour price."
"Poverty is not declining and purchasing power of the poor is further reducing," he said, adding, "there are instances of one set of data failing to corroborate another set of data."
For example, he said that the higher than targeted GDP growth is not matched by higher than targeted tax revenue collection. The significantly higher manufacturing growth rate is not matched by a corresponding increase in industrial energy consumption.
He said: "The customs duty receipts show that there are distortions in the collection patterns. Customs duty receipts for several commodities increase at the same rate and this phenomenon continues for three years in a row. Targeted and actual direct and indirect tax collections are exactly the same." "The situation with other data is no different," he added.
FARM GROWTH: Bengali said: "Agricultural growth is disappointing. The low growth in agriculture sub-sectors points towards serious underlying problems - in the agrarian economy. The slightly above two percent growth in the agriculture sector as less than the population growth and hence a dangerous sign."
He said that in manufacturing sector broadening of the base is needed to sustain its growth momentum.
He said: "The critical factor here is to build or enhance the capacity of the traditional as well as the newly emerging industries to enter the export market. The dependence on textile products may prove disastrous if the demands in the 12 countries to whom our exports go mostly, decline as it has happened during 2003-04. Garment exports dropped by 7.4 percent during 2003-04."
Bengali said that while the economy has performed relatively well in FY2004, it also needs to be kept in mind that certain macroeconomic indicators, ie, current account balance, appears to be positive on account of net receipts from outside the economy rather than the performance of the domestic economy.
He said that a disturbing aspect of economic performance is that there appears to be what may be described as jobless growth. "Despite the high GDP growth and even higher large-scale manufacturing growth, unemployment has risen. This is not surprising given the composition of industrial growth, ie, the high growth industries are largely capital-intensive and assembly or packaging type operations."
ECONOMIC SURVEY: Talking about the Economic Survey Bengali said that a glaring deficiency of Economic Survey 2003-04 is the absence of any meaningful reference to the issue of income distribution, including regional disparity.
"There is no clear evidence that inter-personal inequality has risen and a north-south divide has emerged. Yet, poverty is stated to have decreased," he said, adding, "given the low growth in agriculture, where over 40 percent of the country's labour force resides, increased unemployment, and the rise in inter-personal as well as intra-regional inequality, the reported decline in poverty is counter-intuitive."
He said that an examination of the methodology by which the estimate has been made "shows that it is conceptually as statistically flawed on a number of points." "By the same token, the results on living conditions and selected social indicators, based on household consumption expenditure survey (HCES) 2004, are equally open to question."
He said that the budget 2004-05 deserves to be commended on several points. The inhibition regarding allowing the budget deficit to rise appears to have been shed.
He said that the most outstanding feature is projected Rs 13.2 billion or 2 percent decrease in the current expenditure over the revised expenditure of FY204.
He said on the down side, the combined share of the two power utilities in total subsidies amounts to 68 percent in FY2004 and increase to73.7 percent in FY2005. "It appears that Wapda and the KESC, which have received significant write-offs of accumulated deficit over the last 2-3 years, are continuing decline in the share of direct taxes has distributional implications."
He said: "The budget does not appear to make meaningful allocations for direct efforts to generate employment or reduce poverty."
Bengali said in conclusion that a 30-year review of budget shows that the basic structure of revenues and expenditures has remained more or less constant.
At the same time, unemployment and poverty have continued to rise, income and asset distribution have become more unequal inter-personally and inter-regionally -_ and access to basic opportunities and services for the poor has tended to stagnate.
"It may, therefore, be necessary to consider a pragmatic shift in the manner allocations of tax burdens and expenditures are made."
Present on the occasion were Dr Qazi Masood and Dr Haroon Ahmed to assist Benagali in his presentation.