The Governor State Bank of Pakistan (SBP) Ashraf Wathra in a session with the media titled topical issues in Pakistan's economy dated 1 September 2016 regurgitated data released by the Pakistan Bureau of Statistics (PBS) that is headed by a retired Finance Secretary - data which the central bank has neither the staff strength nor the expertise to substantiate.
The Governor in his press briefing cited the 4.7 percent highly controversial PBS statistic on growth for 2015-16. Had he taken the effort to direct his team to try to reconcile this rate with other primary freely available credible government as well as industry data sources he may have had a chance of convincing his growing number of critics that he is fully implementing, in letter and spirit, the recently International Monetary Fund dictated conditions under the ongoing $6.64 billion programme with respect to SBPs autonomy. The government data and industry wide sources include PBS data (inclusive of Small and Household Manufacturing Survey, Labor Force Survey, Census of Establishments), Ministry of Food Security, National Fertiliser Development Centre, Household Integrated Economic Survey, Oil and Gas Development Corporation, Energy Year Book, Sui Southern and Northern Gas companies, Ministry of Industries and Production, National Electric Power Authority, Federal Board of Revenue, Ministry of Railway, Port Authorities, Ministry of Finance, International Cotton Advisory Committee, Hydrocarbon Development Institute of Pakistan, All Pakistan Textile Manufacturers Association, All Pakistan Cement Manufacturers Association, Association of Builders and Developers, Pakistan Petroleum Ltd, Oil Companies Advisory Committee.
Acceptance of the PBS released data disturbingly also implied acceptance by Governor SBP of the inexplicable decision in 2013-14 to downgrade the growth rate of two years ago (2010-11) to enable MOF to claim the highest ever growth rate during the past five years.
During the press briefing the Governor quickly disabused those obtuse media personnel like myself who consider that as the post of SBP Governor is constitutionally protected it guarantees the appointment of a non partisan Governor by distinguishing the macroeconomic indicators (for which the central bank is not responsible) of the PPP led coalition years (2009-13) with the PML (N)-led years (2014-16). This enabled Governor SBP to make claims that can be easily challenged. Firstly, he highlighted an average of negative $4 billion as current account balance for the PPP years relative to negative $2.8 billion in the PML (N) years. However, this data mulls over the negative $2.49 billion in 2012-13 or what was inherited by PML (N), which is lower than the negative $2.8 billion average for the PML (N) years.
Secondly, the Governor showed no qualms about citing foreign exchange reserves of $23.1 billion (which include the private sector's cash held at commercial banks that incidentally is not included in official reserves by central bankers anywhere in the world); and yet this did not deter him from excluding the private sector debt from total government debt to highlight that government debt is lower than the $73 billion total debt cited on the SBP website. Governor SBP also refrained from mentioning that the rise in publicly guaranteed debt from $0.2 billion in 2012 to $1.3 billion in 2016 as noted in the Economic Survey reflects the fact that the government has extended sovereign guarantees to the China Pakistan Economic Corridor (CPEC) which are not supported by multilaterals on the grounds that private public partnership should not be extended sovereign guarantees.
Thirdly, the Governor SBP highlighted the budget deficit of 8.2 percent in 2012-13, an election year, that included three months of caretakers as well as Nawaz Sharif's decision to borrow over Rs 400 billion to eliminate the circular energy debt that necessitated directing banks to remain open on 30 June 2013, a Saturday. Governor SBP cited a budget deficit of 4.3 percent in 2016 - a claim that falls by the wayside if the 'doctoring' of data by the Finance Ministry with respect to tax collections, non-payment of refunds, advance tax collections as well as higher non development expenditure than budgeted are taken into account. Those of us under the impression that the government has begun the payment of refunds as indicated in the much publicised ceremony attended by the Prime Minister recently need to be informed that Rs 21 billion cheques were not issued at the ceremony (with exporters claiming the total amount as close to Rs 200 billion) and exporters were told that the cheques would be received in the mail. At the time of writing of this article the exporters had yet to receive these cheques.
And finally Governor (SBP) claimed that exports declined in several countries, inexplicably he also cited Mongolia with few exports, as well as Indonesia, Malaysia and India as performing as bad as Pakistan. Two elements were ignored: first that our total exports were much lower than these countries to start off with which explains why he focused on export growth figures and secondly these countries have foreign exchange reserves that, unlike us, are not debt enhancing - a view that was acknowledged by the IMF mission chief. Governor (SBP) also echoed MOF claims in explaining why exports are declining: low global demand and low commodity prices and like Finance Minister Ishaq Dar reckons that "power gas supplies to exporting firms have largely been smoothened out. Law and order has improved. The government has committed to settle refund claims of exporters. Private firms are cash rich and interest rates are also low; new investments will bring innovation and may also help diversifying the product base." But one of the major causes of the decline in exports, though certainly not the only one, is the rupee over valuation which in, unlike IMF, Governor (SBP) discombobulates by stating that rupee depreciation will not help and notes that "although currencies of India Indonesia and Malaysia went through significant depreciation they were unable to increase exports." The problem is one of degree: Indian rupee fell only by 4.2 percent (with a greater relative impact on its exports), given much less than the euro at 13.6 percent, and way below the depreciation in the Turkish lira at 25 percent or the Brazilian real at 44 percent. So how much did the Pakistani rupee depreciate? The average US dollar/rupee parity for 2013-14 as per the Economic Survey was Rs 102.8591 while the current market rate is Rs 105.65 to the dollar or a depreciation of only 2.7 percent. The result on our exports is for all to see.
Inflation came down from 11.8 percent during the PPP tenure, when international oil prices were sky rocketing, to 5.8 percent during the PML (N) years though the decline should have been higher as the oil prices, our major export items, have tumbled during the past three years. The reason: the heavier than ever reliance on taxing the energy sector to generate revenue - a major input in manufacturing that no doubt is a factor in a decline in exports.
Remittances increased from $13.9 billion (again only 2012-13 data was cited) and Governor SBP, makes the claim that the outlook for remittances remains positive in spite of a decline in remittance inflows in other regional countries by arguing that the number of Pakistanis who have proceeded abroad have increased by 16.3 percent with 41.7 percent in Saudi Arabia. Maybe he missed out on the difficulties facing the workers in Saudi Arabia these days with that country's economic surplus disappearing with the oil price decline. A few other disturbing figures on the SBP website need to be highlighted: (i) public sector entities debt in 2016 was Rs 793.3 billion - up from Rs 665.2 billion in 2015 - a 19 percent increase; so much for improved governance under the PML (N) administration; (ii) credit to private sector doubled - from Rs 209.6 billion in 2015 to Rs 457.6 billion in 2016. However, total refunds claimed by the exporters that have yet to be released necessitated increased borrowing for working capital and with the decline in interest rates (highlighted as Monetary Policy Support by Governor SBP in his presentation) many a manufacturer borrowed large sums to retire previous loans procured at higher rates of interest accounting for a rise from Rs 73.4 to Rs 297.1 billion. Was the general public better off as a result of higher total credit to the private sector? Consumer financing declined from Rs 32.5 billion to Rs 12 billion though services witnessed a rise from Rs 13.7 to Rs 78.8 billion.
To conclude, it was extremely disappointing for Governor SBP to diminish the high office he holds by citing macroeconomic data that the SPB is neither responsible for collecting nor their performance other than a few indicators like banking risk and private credit.