Money Matters

Growing gap

By Ihtasham Ul Haque
Mon, 09, 16


The difference of opinion between the government and the independent economists/ financial writers over the officially stated GDP growth rate continues to be an unbridgeable gap.

So far, the economic team, led by the finance minister, has not been able to dispel the impression of mathematical manipulation and figure fudging to create an impression of a healthy economy.

Credible economists and critics termed last year’s financial assessment ‘exaggerated and manipulated growth numbers’.

Many believe this difference in opinion can be sorted out, or at least bridged to an extent if the official story is backed by International Financial Institutions (IFIs) like the World Bank, International Monitory Fund (IMF) and the Asian Development Bank (ADB) with an honest professional assessment of our economy.

Majority of these critics, comprising renowned economists, former governors of central bank, former senior bureaucrats, former finance ministers, financial writes, and the members of the editorial boards of the reputed daily newspapers, vehemently disagree that the GDP growth remained 4.7 percent in 2015-16.

They also disbelieve that five percent plus GDP growth target set for the current financial year, is genuine and achievable. For them growth rate stagnated between 3 to 3.5 percent during the previous Pakistan Peoples Party (PPP) regime and in the first two years of the Pakistan Muslim League-Nawaz (PML-N) government.  

The finance minister and the central bank governor paint a rosy picture of the economy, and say that Pakistan achieved a formidable 4.7 percent growth rate after eight years, in 2015-201. But they also do concede that there cannot be any real economic turnaround without managing seven percent plus GDP growth rate. They often claim that inflation today stands at an all-time low of 2.9 percent; current account deficit has shrunken to $2.8 billion, foreign exchange reserves doubled from $11.1 billion to $23.1 billion, and that fiscal deficit is expected to be lowered to 4.3 percent against 8.2 percent of 2011-12. 

These claims are often vigorously contested by critics who question 4.7 percent growth rate and 5 percent plus growth in 2016-17 when exports are down by 30 percent, foreign direct investment (FDI) by 77 percent, and home remittances went down by 20 percent in July this year. On top of that the agriculture sector registered 0.3 percent negative growth rate, along with nominal growth in large scale manufacturing during the last financial year.

There have been some improvements in power and gas supplies to the industries, which are still considered insufficient to meet $35 billion export target in three years.

Moreover, law and order situation coupled with the non-payment of over Rs200 billion sales tax refunds is still a big hurdle. The issue of rupee parity against dollar is also making Pakistani exports uncompetitive and the government needs to look into it.

Similarly, there are questions about the effectiveness of devolving the health and education sectors to the provinces following the 18 amendment.

The prime minister and his cabinet ministers at times do concede that fruits of development have yet to reach the people, as the government’s focus remained on law and order, and building institutions, which they allege had systematically been destroyed by the corrupt PPP regime.

The PML-N government also claimed that PTI-led by Imran Khan and other opposition parties were also creating hurdles in the way of development and public welfare. In this regard, they said Imran Khan’s agitation-politics has wasted three years, a claim often rejected by the government’s detractors.

PML-N insiders say the government could not work out and implement short and medium term plans to benefit the common man, because of fire-fighting the PTI.

Now, there is hardly any time left with the government to deal with issues relating to rising poverty and unemployment.

Senior PML-N leaders reveal that if the government does not provide relief to the working classes by ensuring significant cut in unemployment, prices, and loadshedding, it may not have an easy sailing. It also needs to improve law and order, provide timely inexpensive health cover, and introduce reforms in the country’s educational system to cater the poorer segments of the society.

It is good to see that the government has finally decided to make use of the constitutional forums of the federal cabinet so as to provide legal cover to a number of decisions made by various cabinet committees relating to restructuring, energy, and economic coordination. At the same time, impediments seen in effectively finalising governance and structural reforms, along with necessary energy and revenue sector reforms will have to be removed in terms of working out fair economic numbers.

Critics maintain that in the absence of wide ranging reforms, the government would continue to face problems in exploring the real potential of the country’s economy. This requires transparency and honest working of annual economic figures acceptable to all the concerned people.

Now when all the provinces are seeking an early meeting of the 9th National Finance Commission (NFC) award, working out of some credible evaluation of the economy assumes paramount importance. The good thing is that the provinces have eventually decided to finalise the reports of their working groups with a view to develop unified proposals to have fair and credible distribution of resources under the new NFC award that had been delayed for quite some time.

Perhaps the federal and provincial government were too busy in their political matters with the result the process of mutual consultation could not regularly take place. After the consultative session last week, provinces arrived at a decision to accelerate the process of demands under the new resource distribution formula that was already in their favour.

Former finance minister Dr Hafeez Sheikh, during whose tenure the last NFC award was finalised and announced in 2009, used to say new resource distribution formula made the centre poor and the provinces richer. One of the reasons to delay the new NFC award was the consistent failure of the successive governments to hold a census.

However, now the top provincial authorities believe that the new NFC must be given to them to meet their rising financial requirements, despite the absence of a new census.

Fair distribution of the 9th NFC award perhaps cannot be ensured, considering the delay in undertaking the census. This will ultimately cast doubts about whatever annual economic figures are prepared.

The PML-N government deserves appreciation for completing three years $6.67 billion IMF Extended Fund Facility programme and resolving not to seek new funding arrangements from the Washington based multilateral agency. The government feels comfortable with its close to $22 billion foreign exchange reserves.

The important question now is if the IMF, while monitoring the Pakistani economy in the absence of any new funding programme, will ensure transparent and credible formulation of annual economic figures. Perhaps one now only has to wait and watch for any development that could satisfy the government’s critics and detractors both over the issue.

The writer is a senior journalist based in Islamabad