Institute of Policy Reforms (IPR) launched a report on six-month review (July to December) of the Pakistan economy for the year 2015-16. "Pakistan has pinned too much hope on the China Pakistan Economic Corridor for its economic revival but the corridor will also increase Pakistan's external indebtedness. The projects under CPEC must have high economic returns so that the country can pay off the debt incurred. External debt is a deep-rooted issue for Pakistan. It will grow with new projects and concomitant import of inputs such as the liquefied natural gas and coal," report said.
The report suggested the government to take steps to boost business activity. "The revival of industry and agriculture needs a mix of policy, governance, and public investment support. Access to project finance for the private sector is key," report said.
According to report, "Pakistan's economy has achieved its targets for economic stability, under International Monetary Fund programme. However, it has fallen behind on growth. With a substantial provincial surplus, fiscal deficit for the period July-December 2015 was 1.7 percent. This is well within the target for the year. Revenue collection and expenditure are largely on track. The latter especially because half-year public sector development spending was about one quarter of budget. The rate of inflation too has dropped. For the period July 2015 to February 2016, year on year CPI fell, though it is above the lowest point of September 2015. The fall in inflation stalled because of increase in GST on some items and because the Pakistan Rupee lost value in August and October."
"Growth during July-December 2015 has been slow. Against its annual target of 6 percent, Large Scale Manufacturing grew year on year by 3.9 percent during July-December 2015. In agriculture, production of cotton and rice, two major crops, fell. This year, cotton lost about a third of its previous year production. Sugarcane production may increase from last year's low, but will be short of the 68 million tons target. Agriculture growth is unlikely to meet the government's target of 3.9 percent for the year," it added.
"Investment also may not meet the target set by government, as there may be cuts on development. Credit to the private sector and import of machinery have increased. It is not clear if these are sufficient to boost investment to the desired level. Power supply, which grew modestly during July-November, continues to constrain economic activity. Overall, IPR subscribes to IMF's cautious growth estimate of 4.5 percent for 2015-16 against the government's 5.5 percent.
Balance of payments poses a special challenge. With decline in exports and low FDI, the economy has relied on external debt, sometimes at high cost. Consequently, the burden of debt repayment will increase significantly in the coming years. Exports fell by an alarming 15 percent during the six months under review. Textiles, our main export, alone fell by nine percent. This is partly because of slow growth of the world economy and world trade. However, Pakistan's exports have suffered also because of the Rupee value and fundamental issues of competitiveness, report mentioned.
The report also emphasised that while it focuses on stability, government must concurrently begin structural reforms of the economy. This is critical if the country is to break out of the low growth trap and continued dependence on external savings. It suggested that for too long policy makers in Pakistan have relied only on management of macroeconomic indicators. It is time for strong action on reforms. Even within stabilisation, they must aim for quantum growth in tax revenues. Successive governments have been unable to persuade important constituencies to pay taxes. The government must reengineer tax policy and administration. Without this, it cannot play its due role in development.