Economy going from bad to worse as a roadmap remains elusive

April 18,2019

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LAHORE: The flagship programs of this government- Ehsas, constructing millions of houses and providing employment to 10 million- may not be possible with the International Monetary Fund (IMF) programme.

So, who will determine the actual roadmap of the economy; the IMF or the government? People of Pakistan should fasten their seatbelts, as the road ahead in the next four years is going to be very bumpy. Every government has a wish list and to achieve it there is a definite programme.

However, the current government has not done so. The people of Pakistan have not been provided with any details as to how the Pakistan Tehreek-e-Insaf plans to accomplish its ambitious and noble objectives. We have already consumed over $10 billion in so called economic stabilisation. However, still we are desperate to sign a deal with the IMF.

The programme, according to the finance minister would range between $6-8 billion. Another ‘good news’ shared by the minister was that after IMF deal, Pakistan was likely to get financing of $8 billion from the World Bank, and $6 billion from the Asian Development Bank.

That would add hugely to our foreign debt. Hence the debt servicing bill would soar. The finance minister should have told in clear terms whether the rupee rate would further go down or not. He should have assured the electorate that there would be no hike in power and gas rates after the agreement was signed.

He should have projected the expected inflation in the next four years. He should have made comments on the growth projections given by the IMF for the next four years. If the projections were realistic then the masses should look for cover, but if these projections were exaggerated then he should have given confidence to the people of Pakistan.

The advisor on commerce has now finally conceded that exports would be around $24 billion, and not $27 as had been predicted earlier. This is what The News had been telling its readers for the last three months.

The predicted trade deficit of $6 billion, as stated by the advisor would be a huge achievement provided the decline in imports was confined to luxurious items only. But if it continued to be mainly at the expense of machinery, raw materials and heavy transport equipment, it would have an adverse impact on productivity and thus make the IMF predictions true.

It is also a pity that the commerce advisor has no idea about the exportable surplus available in the country. In context of China, he pointed out that concession worth Chinese imports of $64 billion have been obtained.

However, he was not sure how much the exports would grow. That could be from $6 billion to $600 million only depending upon the export surplus. The advisor’s prediction might be right, since this government has provided concessions to the five exporting sectors (mainly textiles) on the assurance from the textile sector that their capacities worth $3.5 billion of exports have closed down.

The textile millers had assured that the closed capacities would revive after concessions. However, time has proven that most of the closed industries were not revived, as they were operating on obsolete technology.

It was on the basis of this assurance that the commerce advisor came up with the $27 billion export target, and a package was announced and implemented in October 2018. The textile sector on the other hand, did not deliver on its promise. Basic textiles should have added $2.5 billion, while $500 million should have been added by the remaining four sectors.

None of which happened, and hence the export target was reduced to $24 billion. It would be pertinent to caution the economic managers not to withdraw the concessions after June, because a number of entrepreneurs have gone for technology up-gradation.

The mills with upgraded technology might survive without concessions, but those operating on currently installed capacity would cave down if concessions were withdrawn. The government should now link the continuation of concessions to only those entities that upgrade at least 10 percent of technology annually. Otherwise the mills with obsolete technology would become parasites on the economy.

They would crumble without government concessions. It must have now become very clear to the economic managers of the country that any sector that did not benefit from over 30 percent devaluation was inefficient and globally uncompetitive. Thus, further concessions over and above devaluations, have only helped them survive temporarily.


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