Briefing the Cabinet meeting this week in Islamabad, the Secretary of Finance told the cabinet that the country has achieved a stabilized economy with the gross domestic product a record high growth of 5.3 percent, with the fiscal deficit reduced by 5.8 percent of the GDP.
Under focus at the cabinet briefing was the review of the overall economic situation of the country, inclusive of key economic indicators such as the economic growth outlook, real sector growth performance, the Consumer Price Index, the credit situation, fiscal consolidation, tax collection by the FBR, workers' remittances, foreign direct investment, foreign exchange reserves, the balance of payments, the public debt and the other significant developments in Pakistan's economy.
It was mentioned that during FY2016-17 the GDP had recorded an increased growth of 5.3 percent, large scale manufacturing achieved a 5.6 percent growth, per capita income increased to $1,629 from $1,334 in FY2012-13, and remittances rose to $19.3 billion. The cabinet was informed that in FY2016-17 the Federal Board of Revenue (FBR) collected Rs 3,362 billion, fiscal deficit was reduced by 5.8 percent of the GDP, 8,286 new companies were registered, forex reserves increased to $ 21.4 billion and FDI witnessed an increase of $ 2.4 billion.
All these are great news for Pakistan's economic health in these difficult times of political turmoil and uncertainty, but the ground realities are not in conformity with the positive economic indicators presented in the cabinet. The fundamentals just do not add up to qualify the good news.
The Pakistan Stock Exchange (PSX) is the pulse and reflection of Pakistan's economic stability. KSE-100 Index has lost around 11,000 points from a high level of over 51,000 in May to below 40,000. This week, it oscillated between the red and green zones at the level of around 41,000. No doubt, political instability and uncertainty and bad news such as Pakistan-US relations, the New York's banking regulator seeking up to $630 million in penalties from Habib Bank Limited and similar perceptions lead to bearish shocks. But in the face of strong economic indicators markets bounce back to a bullish trend. This has not happened in the last quarter.
The reported large-scale manufacturing growth is not reflected in Pakistan's exports, and it continues to be sluggish primarily on account of the increasing cost and ease of doing business in Pakistan. This renders our products non-competitive in the global market. Just the cost of electricity in Pakistan is nearly 30 percent higher, compared to electricity in India and Bangladesh - the two major competitors of Pakistan in textiles, leather and similar other products.
Pakistan's foreign exchange reserves will remain under pressure during the ongoing financial year on account of the unprecedented repayment worth $7.4 billion on previous loans and the increasing current account deficit. Foreign reserves are depleting, and have come down by over $4 billion in less than one year. The country's total foreign liquid reserves stand at $20.05 billion, of which the State Bank of Pakistan holds $14.38 billion and commercial banks hold $5.67 billion.
Loan repayment and the current account deficit are widening due to the imbalance between imports against exports and foreign remittances, which is another threat to Pakistan's foreign exchange reserves.
Pakistan's current account deficit widened to $2.1 billion in July, against just $662 million in the same period of last year, and this was due to the increase in trade deficit. The looming repayment of $7.4 billion on foreign loans will further erode the country's reserves, which could be reduced to a level where Pakistan's financial credentials could be compromised.
The real estate sector, which was the prime mover, by and large, of the undocumented economy of the country, has nosedived. This has resulted in the slowdown of other industries feeding the construction industry, such as cement, steal, ceramics and glass. The government of Prime Minister Abbasi appears to be taking some positive steps for better management of governance.
The cabinet's approval of amendments in the Guidelines of Prime Minister's Global SDGs Achievement programme and amendments in Rules of Business, 1973, after the reorganization and creation of new federal ministries and divisions to facilitate and clarify subjects allocated to them is a desirable step. But much more has to be done in this area. There are 35 federal ministries in Pakistan and an equally large number of autonomous and direct reporting departments under them. The roles of a number of ministries are duplicating and conflicting and many of them are redundant and a burden on the country's economy. The Pakistan Council of Scientific and Industrial Research (PCSIR) has hundreds of PhDs under it whose delivery to the nation is questionable. So is the case with hundreds of PhDs employed in the agriculture research centres under the Ministry of Agriculture.
The government will do well to focus on structural and governance issues, which are inherently threatening the economy and eroding businessmen's confidence. The government should work to improve the cost and ease of doing business. It is not without reason that Pakistan's global ranking is at its lowest and is sliding down, making our industry non-competitive in the domestic market and in exports. Loss-making business entities in the public sector continue to scale off part of our GDP and there is a burden on our economy due to years of gross mismanagement largely condoned by the government at the expense of the taxpayers' money. There are more such areas which need government intervention.
The government needs to work on a plan to enhance exports and control imports to curb the soaring current-account deficit. The routine solutions of the Ministry of Commerce through non-ending tariff rationalization and incentives to exporters have not worked before, and they will not work in future either. The issues are far more complex for these cosmetics to better the economy. Good economic statistics make sense only when their effects are felt by all segments of society. Pakistanis want to feel something more measurable on ground.
(The writer is a former President Overseas Investors Chamber of Commerce and Industry)