LAHORE: The day Prime Minister Imran Khan showered praise on his economic team for economic turnaround, three most respected Pakistani economists Dr Hafeez Pasha, Qaiser Bengali and Shahid Kardar were disputing the government strategy on economy at Asma Jehangir Conference.
The masses have long stopped getting impressed by the feel good mantra of the present regime, but up till now senior economists were not so blunt in criticising the government. We feel constrained to quote what these three renowned economists have said about the way the economy is being handled.
One however wonders what pleased the prime minister about our economic performance. He said that exports have risen by 5.9 percent, while the government data shows that in the first quarter of this fiscal; the exports inched up by less than half of what the prime minster claimed in his tweet. Perhaps he was referring to increase of exports in volume. The imports have definitely declined sharply that reduced the trade balance sharply.
Foreign investment has increased appreciably in the first quarter. Economic statistics are not so simple. The devil lies in details. Textile exports have increased by 2.79 percent in the first quarter. This became possible because the government earmarked Rs24 billion in subsidies for the five exporting sectors, dominated by textiles, to lower the gas bills in Punjab and the power tariff for these industries all over Pakistan.
It is worth noting that 80 percent of this subsidy is consumed by the yarn and fabric producers. Around 20 percent of this subsidy is shared by the rest of the five exporting sectors, including value-added textiles.
Performance yarn and fabric is pathetic as it declined sharply both in value and volume. The government planners are sadly mistaken if they think that the nominal increase in exports is because of their policy interventions. The exports of most value-added sectors increased because of high devaluation and not because of government subsidy.
Impact of power and gas tariff is nominal on value-added apparel cost as they hardly consumed Rs4 billion out of Rs24 billion subsidies, while the exports increased several times more. On the other hand, basic textile that consumed 80 percent of the subsidy in fact recorded negative export growth. This means that the subsidy has gone down the drain. This also questions the strategy of the economic planners that subsidised the wrong subsector of textile.
We should also analyse the imports as well that have gone down substantially. Luxury items were rightly slapped with high regulatory duty. This, coupled with massive devaluation has reduced the imports of these items appreciably. Other items that are not considered a luxury by the planners, and on which no fresh duty was imposed, declined appreciably as well.
Only last week the Prime Minister’s Advisor on Commerce Razzak Dawood expressed concern at the decline in import of raw materials. This is despite the fact that the government has slashed duties appreciably on most of the raw materials used by the local industry.
In other words, this means that the productivity in the next three months would continue to decline. The manufacturers keep three-month stocks of imported inputs to cover for any delays at import level.
Coming to increase in foreign investment in the first quarter, it looks encouraging but one should again go into the detail of this investment. If the investment inflows were to set up new plants in Pakistan, it was good, but if those investments by foreign funds were made in Pakistan’s treasury bills, then it is not a big deal. We attracted this investment for a limited period at a very high rate.
The constant small increases in our official foreign exchange reserves are because of this hot money coming in our coffers. It will keep the regime afloat and increase out interest payments substantially.
No jobs will be created as a result of this investment. Moreover, the fund managers would take back their investment at the slightest hint of instability in the region or even in Pakistan.
What we actually need is project investment that shows the investors intent to stay for a very long time in Pakistan. There is no bar on rejoicing on frivolous grounds where rupee stability is ensured at the cost of huge human suffering. Pakistanis deserve a humane solution to their problems and not cosmetic balancing of the sheet.