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December 8, 2018

Low govt resources turn economy rusty


December 8, 2018

LAHORE: Economic growth is at a standstill, as the present government lacks resources to finance development work or to enhance resources for social sector to enrich human resource, both of which are essential for growth.

The population of the country is increasing at the rate of 2.4 percent per annum –the highest in the region. Inflation at the moment is ranging at 6.5 percent – again the highest in the region. This asks for a growth rate of above seven percent to cope with these two factors.

The government on the onset drastically curtailed the development expenditure in the mini-budget and levied some new taxes to enhance revenues. This unfortunately has not worked according to plan, as revenue collection is much below expectation, which means further cut in development.

Pakistan is in economic emergency and prudent planners always chalk out a short-term, mid-term, and long-term strategy. This government has not spelt out its strategy for economic revival.

Economy is moving from bad to worse as the government policies lack clarity. Pakistan posted a GDP growth of 5.7 percent in 2017/18. The predictions by all global financial institutions were that the country would cross growth rate of 6 percent in 2018/19. But those predictions went sour, and now pundits consider that just a four percent growth was a possibility.

The ruling elite should realise that the economy is all about perception. When the capital market loses its capitalisation heavily on some damaging news about the economy, it is usually not because the member companies of that capital market have suddenly started performing poorly.

The investors in fact display their mistrust in the government policies. In Pakistan’s case, one can see that the profitability, earning per share and dividends of the commercial banks, car manufacturers, fertiliser companies and oil sector entities continue to grow every year despite depression in the market.

Same is the case with real economy. Any slip of tongue by an influential government functionary creates ripples among investors.

It is better to let the financial wizard of the government do the talking. Chaos would prevail if every tom dick and harry gives his input on the economy.

Why so much hype is created on every foreign visit of our prime minister? Why every minister boasts that Pakistan got pledges of unprecedented economic support?

Everyone knows that Pakistan currently needs hard cash in foreign currency just to pull through. The government is in fire fighting mode to stop depletion of foreign exchange reserves.

The money that will come from friends would simply bail us out for the time being. We will consume this amount in a year and again face the same problem.

This government is making earnest efforts to bring foreign inflows into Pakistan. But this is not enough. Even more rigorous efforts are needed to increase exports, while double efforts are needed to curtail imports. Unless we succeed in this regard, we will be moving around with a bowl in our hands.

The prime minister in his interview with the senior journalists has said that exports have started picking up. This is not true, as the overall increase in exports stands at four percent in first four months of this fiscal. Reports indicate that November exports were also dismal.

Our government should see this nominal rise in exports in light of 36 percent devaluation of our currency. Ideally, the exports should have increased by 36 percent or at least by 18 percent, as all other cost factors were the same.

The same dollar that earned the exports Rs104 is not earning them Rs139.

This means that our exporters have not adjusted the rates downwards to fetch more orders. Our textile exports are stagnant both in dollar terms and quantity terms.

The increase in imports has slowed down, but the fact that the imports are still rising despite huge decline in rupee value means that the government efforts to curb unnecessary exports through duty increase has not worked.

Import duty increase has never impacted the volume of imports in Pakistan. There should be outright ban on all luxury imports to reduce the foreign exchange dependence.

The hype of immediate prosperity created at the induction of PTI government proved short-lived.

Its leader promised the moon to the electorate in 100 days, during which unfortunately the pockets of the poor were siphoned by increasing prices. Unemployment, instead of going down, has crossed nine percent from six percent last fiscal.

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