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Opinion

September 6, 2018

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Where we stand: Part-II

Most economists think that the strong rupee policy our State Bank has always pursued is detrimental to our current account position. As an economist, I agree with this assessment.

Flexibility in the exchange rates would have made our exports more resilient and imports more curtailed. That is why I was quite satisfied when the State Bank of Pakistan devalued the currency by about five percent each in December 2017 and March 2018 to bring the dollar to Rs115.

However, since the time the caretaker government took office, the rupee was first rapidly devalued, in two steps, to Rs129 and then strangely brought back to Rs122. Here, I would just like to make a general observation that markets don’t like such volatility and the current value of the rupee, if maintained with some natural flexibility, will result in greater exports and a reasonable check on inflation.

During the PML-N’s five years in office, we added over 11000 MW of power-generation capacity. Contrast this with the less than 21000 MW installed in the 66 years since our independence.

Similarly, to around 550 km of motorways built in Pakistan since 1991 when Mian Nawaz Sharif started building motorways in Pakistan, we were able to add 1700 km of motorways and thousands of kilometres of highways and other roads. The infrastructure we have built will add value to our economy and keep the cost of businesses down. Truck drivers will now be able transport dates from Khairpur to Islamabad in about nine hours. And as they drive down the six-lane dual-carriage motorway, they will not pass through any town experiencing loadshedding.

But we have not just built the hardware for our economy, we have also built the software. During the last fiscal year, the federal government transferred about Rs2300 billion from the divisible pool to the provinces, which compares very favourably to the approximately Rs1200 billion transferred in the last year of the PPP’s tenure in power; this step allowed provinces to spend more money on health and education, subjects that belong to the provinces since the introduction of the 18th Amendment.

At the federal level, we have already created five centres of excellence at our nation’s various universities for applied mathematics, artificial intelligence, big data and cloud computing, cyber security, and automation and robotics. Funds for two more, one in nanotechnology and the other in space technology have been provided in this year’s budget. Besides these specialised fields, we have tripled the overall budget for the Higher Education Commission.

When the PML-N formed government in 2013, FBR revenues were a little less than Rs2000 billion. This year, our revenues were almost double of what we collected in 2013. We have now left a substantial base for the new government to further increase revenue, especially after the recent successful amnesty scheme. The PML-N’s last budget had a target revenue collection of Rs4435 for the next fiscal year. This would have still leave a budget deficit of about Rs1500 billion.

The good news is that Prime Minister Imran Khan has claimed that, because he’s more “trustworthy”, he will be able to raise at least Rs8000 billion. This of course will take care of the budget deficit, which is a persistent problem for our economy. And, since trade deficits and budget deficits are interlinked, if our government can raise Rs8000 billion in FBR revenues our current account deficit will also be essentially eliminated. The bad news is that this will not happen. (As people will soon realise a lot of things Prime Minister Imran Khan says will never happen). The PTI government would do well just to meet the fiscal deficit and revenue targets we set for ourselves last year.

And yet even after transferring twice the amount to the provinces and spending more than twice on development projects, and more than tripling higher education (HEC) and poverty alleviation (BISP) budgets, and providing adequately for defence and pensions, we were still able to record a budget deficit last year at 6.8 percent of GDP, which again compares very favourably to the PPP government’s last year of 8.2 percent. Our average budget deficit in the last five years, however, has been less than 5.5 percent.

So, even though it has become fashionable in the media these days to speak badly about Pakistan’s economy, the fact is that we have handed the PTI a very healthy economy, not only much healthier than what we inherited from the PPP, but one that has been the fastest growing in a decade. I hope that the PTI will be able to build on our successes and keep the promises it has made to the people of Pakistan.

Concluded

The writer has served as federal minister for finance, revenue and economic affairs. Twitter: @MiftahIsmail

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