The Economic Survey’s relevance, limited to data analysis, is neither up to date (limited to July-March or for nine months for most indicators even though monthly data for another two months is available on Finance Division and Pakistan Bureau of Statistics websites) nor unbiased as it has a penchant for supporting the ruling administration’s policies which renders the annual exercise of presenting it amidst much fanfare by the Finance Minister a day before the budget, meaningless and redundant.
In years when there is an administration change, the outgoing team laments a reverse bias, however this time around there is clearly an overt bias in favour of the Caretakers perhaps as the caretaker finance minister’s tenure - 17 August 2023 to 3 March 2024 - formed the major period under consideration by the Survey team.
Political pundits however claim that this strengthens the general perception that all the key stakeholders, civilian and military, were firmly on board in the selection of the caretaker economic team leaders as there was widespread acknowledgement that Pakistan’s economic recovery merited top priority.
This bias is indicated in the observation that the “Government’s dedicated efforts to complete 2023 Stand-By Arrangement (SBA) have yielded significant progress in reinstating economic stability.” The stability is evident when compared to the low base of last year which may explain why the Survey cleverly focuses on percentages rather than on total figures though there is a need for clarification/rationalization in some instances.
An example is the GDP growth projection of 2.4 percent for this year against negative 0.2 percent last year – but the investment to GDP ratio plummeted by one percentage point – from 14.1 to 13.1 percent this year with investment decreasing by 1.7 percent in real terms.
Savings increased from 12.6 percent last year to 13 percent this year, baffling given the average inflation of 24.5 percent July-May by the Pakistan Bureau of Statistics – a rate that should have implied negative private savings. Pakistani governments have negative savings evident from the budget deficits however inexplicably the Survey fails to provide separate data for public and private savings.
Be that as it may, this implies an investment-savings identity indicative of the fact that the government did not rely on foreign savings (borrowings) to increase the investment rate as in past years – no doubt as access to foreign commercial banking sector abroad as well as through issuance of sukuk/Eurobonds was not available due to Pakistan’s poor rating.
One major point of departure from previous surveys is the fact that improvements in key macroeconomic data of particular relevance to the general public post-date the departure of the caretakers which sceptics maintain reflect the primacy of public opinion by an elected government as opposed to a caretaker set-up: (i) the decision to review GDP growth for the first two quarters was taken end March and revised upwards for both quarters in May; (ii) inflation plummeted from 23.1 percent in February to 20.7 percent in March to 17.3 percent in April and 11.8 percent in May; and (iii) with the lack of organized labour exchanges in the country – in urban centres and more so in rural areas, claims of a decline or constant unemployment rate (6.3 percent) has little relevance. The irony is that neither of these adjustments contributes to any feel good factor as the public has its hand on the pulse of these indicators.
The Survey claims that “the economy has experienced a resurgence in moderate growth and a reduction in external pressures.” External pressures may have eased as all outstanding loan payments were made and roll-overs deferred however pending payments to foreign investors in the country especially those operating under the China Pakistan Economic Corridor (CPEC) umbrella should have been noted in the Survey.
Additionally, reliance on external resources has not abated as a proactive policy measure. The Survey notes that “Special Investment Facilitation Council (SIFC) aims to enhance the country’s business environment by providing a platform that supports foreign businesses and addresses obstacles that international companies may encounter thereby facilitating their progress.
These initiatives will help revitalise the manufacturing and mining sector and contribute to accelerate performance in the medium term.” SIFC members - senior most federal and provincial governments as well as civilian and security establishment – have to-date undertaken several high level visits to friendly countries seeking extension of roll-overs till the end of the next Fund programme, direct foreign investment inflows without government guarantees and deferral of repatriation of profits on existing investment; yet since its establishment on 17 June 2023 there has been no inflow of pledged investment though one may argue that roll-overs of over 9 to 10 billion dollars till the end of the yet to be agreed Fund programme may be secured.
There is no word of caution that sovereign guarantees must be sparingly given or contracts must be carefully vetted to ensure that there are no long negative term implications as are evident in the contracts signed with Independent Power Producers under the umbrella of the China Pakistan Economic Corridor.
Current expenditure has been cited as 12.33 trillion rupees July-March while the total budgeted amount was 13.3 trillion rupees – a rise of 33.4 percent which by itself explains the persisting double digit inflation.
To conclude, one would hope that the government revisits the Survey’s terms of reference and allows the team to note all issues, especially those sourced to flawed decisions, and focus on out of the box recommendations.
Copyright Business Recorder, 2024