LAHORE: The debate of whether the economy is moving up or going down is being carried out without going through the available economic statistics. Governments’ performance looks pathetic if one goes through eight economic indicators posted on the website of the State Bank of Pakistan.
It needs a lot of explaining from those who insist that an economic turnaround is in the offing. This government assumed power in August 2018 when the central bank policy rate was 7.5 percent.
After exactly one year, the policy rate has increased by 625 basis points to 13.75 percent. Higher interest rates anywhere in the world deter investment, and increase the cost of doing business. In Pakistan’s case, the banks are lucky because the absence of private sector borrowing has been compensated by the government that is the largest borrower of bank loans.
This is the reason that banking is the only sector of business that has not been impacted by the economic turndown.
Inflation as stated on SBP website was 5.8 percent in August 2018; it has almost doubled to 10.6 percent after changes made in the consumer price index. If the CPI index was not changed the inflation in August 2019 would have been 11.6 percent.
Every economist agrees that inflation is an implicit tax on poor as the businesses pass on the impact of inflation to the consumers. Majority of the population in Pakistan lives either below poverty level or on the edge of poverty. In August 2018, dollar was available at Rs123.78 according to the data posted by SBP on its website. In August 2019, the dollar was traded at Rs158.07.
Since our imports are almost double then our exports, weak rupee makes imports extremely costlier. The exports unfortunately did not benefit from devaluation at least in the last fiscal. In fact, overall exports nominally declined in 2018-19.
The SBP data discloses that the foreign debt outstanding against Pakistan in September 2018 was $96.505 billion. The foreign debt by the end of June shot up to $106.320 billion.
This is a massive increase of $10 billion in less than one year. This does not include the $3 billion we received from the International Monetary Fund (IMF) and other loans received from multilateral donors and friends of Pakistan after June 2019.
Much hype has been created that the foreign loans were taken to retire the past debt. If that is so, why have our foreign debt liabilities increased?
Net reserves of SBP on August 24, 2018 were $10.226 billion. In the one year reign of this government, the net reserves with SBP have declined to $8.271 billion.
It is indeed worrisome that even after taking loans of over $10 billion plus $3 billion from IMF our reserves have declined instead of increasing. This is despite the fact that the remittances increased by $1 billion and imports shrunk by $7 billion during this period.
On the business side, it is worth mentioning that large scale manufacturing during fiscal year 2017-18 was over five percent. In contrast, the large scale manufacturing growth declined by 3.64 percent during July-June 2018-19.
Similarly foreign investment in 2018-19 was $323.05 billion as recorded by the SBP and it declined to only 1.251 billion in 2018-19. The decline in LSM is understandable as it was the outcome of flawed government policies.
It also reflects that the consumers have been cutting expenses as they do not have the same consumable surplus that they were used to in the past. The decline in foreign investment is due to the negative perception about the economy of Pakistan.
While high prices are making the life of public miserable; this government has failed to control expenses and wastages. The corrupt practices are still in vogue with the same vigour that was criticised by the ruling party while in opposition.
The bleeding of public sector enterprises has increased instead of declining. Public sector enterprises debt and liabilities were Rs1359.7 billion in September 2018. Public sector enterprises debt and liabilities were Rs1621.9 billion in June 2019.
This is an increase of Rs275 billion in one year. Even after over a year in power, the economic decline is still on.
Car sales have declined too for the second month in a row by 41 percent. Cement uptake in the country declined by over eight percent in August 2019 compared with the corresponding month of last year. The rulers are in denial and still boast of imagined prosperity.