Growth remains low amid positive macroeconomic indicators

LAHORE: Despite the vast improvement in macroeconomic indicators, economic growth in the country has remained elusive in the past two years, experts said on Tuesday.
They said this is because the improvement in the macro economy is due to external factors and doesn’t involve government’s efforts essential for increasing growth.
A financial analyst Amina Usman said the foreign exchange reserves increased to a comfortable level only because the IMF provided over $4 billion in last two years, the Saudi government provided a grant of $1.5 billion, the 3G and 4G licenses fetched government $1.2 billion more and the US coalition support fund released around $1.5 billion.
She said it is wrong to think that the reserves increased because of higher exports. In reality, the exports have remained stagnant in the past two years. Moreover, the imports have continued to increase, despite the fact that crude oil rates crashed by almost 50 percent since this government assumed power.
“The government should be thankful to the expatriate Pakistanis that have assured double digit growth in remittance during last two years,” she added.
The inflation has not declined because of any reduction in government deficit that has continued to rise, Usman said, adding that decline in global crude and commodity prices had sobering impact on inflation. The government claims that it has brought down the budget deficit from eight percent in 2012-13, in the last year of PPP regime, to five percent in last two years.
“Though, it is statistically true, as Finance Minister Ishaq Dar in June 2013 made sure that the entire circular debt of Rs512 billion is paid to the power sector stakeholders,” she said, “But, the current regime doesn’t take in account the Rs360 billion circular debt accumulated during past two years.”
The analyst further pointed out that interest rates have declined because of decline in inflation.
Market analyst Benish Toor said there are many reasons that comfortable economic indicators did not accelerate growth.
First, the governance has not improved much during the last 26 months. Second, the power sector inefficiencies have increased manifolds from what they were in 2012-13.
“Not only the power losses have increased but the recovery of power sold has also declined significantly,” she said, adding that the unrecovered power dues have ballooned from Rs400 billion in 2012-13 to Rs800 billion in 2015.
The high handedness of police is as rampant as ever. The judiciary has not decided numerous cases pending with them after businessmen appealed the fines imposed by the Competition Commission of Pakistan (CCP) about seven years ago. Moreover, thousands of cases are pending in the banking courts for years. Tax reforms have remained elusive and the tax to GDP ratio has nominally inched up in last two years and is very much behind the PML-N target of taking it to 15 percent of the GDP by the end of its tenure in 2018, Toor said.
“The private sector credit has declined appreciable and is probably at the lowest in last one decade,” she added.
Toor regretted that the menace of under invoicing and smuggling has increased in last two years.
The industrial production has still to pick up pace, she said, “In fact, the large scale manufacturing that crossed five percent in the first two quarters of 2013-14 has remained erratic ever since.”
No green field projects have come up during this period and the unemployment rates have increased as numerous workers lost their jobs in the manufacturing sector, the market analyst concluded.
An economist Asif Ali Shahid has said the economic growth is not linked to a single factor, “It is a package where the economic planners try to bring an optimal balance on all fronts.”
He said growth needs macroeconomic stability but at the same time it needs transparent government policies. “The government has to create conditions that can force commercial banks to finance businesses instead of parking their excess capital in government securities,” he said.
He said investors want most efficient logistics and level playing fields. “When governments assure investors of a guaranteed rate of return on investment that shows that the economy is not moving in the right direction,” Shahid said, “growth will come if the human resource is enriched with skills and health.”