Dr Ashfaque H. Khan in his article "Economic Woes" has raised questions that despite tall claims of the present government, there isn't much changed in the last nineteen months and that where do we stand today? The writer should be mindful that when present government took the reins the economy was weak and fragile. As the growth rate had averaged less than 3% since 2008-09, which is significantly below our potential. Inflation had averaged around 12%, national reserves were down to below $8 billion. International predictions were that Pakistan will default in June, 2014.
The economy has taken a turnaround, thanks to pursuit of a serious economic agenda. Early positive results, particularly stabilising foreign exchange reserves, appreciation of exchange rate, stability in prices despite heavy adjustments, industrial growth despite low energy supply, exceptional increases in remittances, historical heights of Karachi Stock Exchange, shift in market based (T-Bills and PIB), public debt toward medium to long term, successful launching of Euro Bond after seven year and Sukuk Bond after nine year, auction of 3G/4G licenses reinforced this view.
Regarding investment, recent estimates reveal positive picture as total foreign investment has increased on account of significant growth in FDI and portfolio investment during July-December, FY15. FDI increased by 19 percent, while foreign investment increased by 217%. The preceding year also witnessed a significant increase in foreign investment, which increased to $4.4 billion as compared to $1.5 billion.
Regarding slowdown in LSM sector during July-October, FY15, as pointed out by the writer, the recent data for November 2014 posted a growth of 4.9% as compared to 2.7%, while during first five months it increased by 2.5% despite sugar crushing not started. The growth momentum likely to gear up in coming months of FY15 on account of various initiatives already taken by the government such as reviving Pakistan Steel Mills (PSM), strong revival in automobile sector and improvement in electricity generation. Therefore, it is too early to assume on the basis of 5-month data by the writer that LSM growth has decelerated.
As far as fiscal deficit is concerned, during July-December 2014-15 fiscal deficit has been recorded at 2.4 percent against the target of 2.5 percent of GDP which suggests that the overall budget deficit at 4.9 percent of GDP, for the entire financial year 2014-15 will be achieved, whereas, last year it was contained at 5.5% and also restricted at 8.2% in 2012-13 so writer's claim that fiscal deficit has reached all-time high at 8.4% is not correct and this year projections at 7% of GDP is also not based on factual position as the government has over performed during the first six months as compared to projected target.
The writer has described export growth at -4.3 percent for July-December of current year, while on FoB basis it is registered at -1.9 percent. It is further to add Pakistan's current account recorded surplus of $76 million in December 2014, export and remittances surged by 22.9 percent and 19.8 percent, respectively as against November 2014, where current account deficit was $568 million while in December it turned into surplus. The trade deficit in December 2014 stood at $1.091 billion as against $1.222 billion in November 2014 while worker's remittances stood at $1.583 billion in December as against $1.321 billion in November 2014. Although the political stand-off and electricity scarcity, country's exports were impacted in the first quarter of the current fiscal year, however, declining oil prices the country's import bill likely to come down by $5.0 billion. Besides, exports are likely to take-off given improved relationship with the EU countries, GSP Plus status and government's pro-growth foreign policy. These achievements cannot be ignored amid domestic security challenges and fight against terrorism. The writer may well look into the positivity of the development rather painting a bleak picture.
With regard to his claim that Ministry of Finance did not release adequate amount of money to PSO to import oil, which created the crisis is total misleading. The Ministry of Finance is nothing to do with petrol crisis. The oil companies are responsible for the crisis as they failed to maintain the requisite stocks. The Ministry of Finance does not make any direct payments to PSO. MoF's obligation is only to the extent of payment of tariff differential subsidy to PEPCO. The Ministry has been regular in terms of payment of subsidy against subsidy bills received from Ministry of Water & Power. In some cases subsidy was released in advance to improve liquidity situation of PEPCO. Therefore, the question of delay in release of funds does not arise.
(The writer is Economic Advisor of Ministry of Finance)