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Managing this economy


April 15, 2019

By Finance minister Asad Umar, while talking to the media on the eve of launching the draft of the government’s medium-term macroeconomic framework on April 8, claimed that the economy had moved from the ICU to the stability ward. The implication was that there has been an improvement in the health of the economy and that eighteen months are required for its stabilization. To reinforce his assessment about the stabilization of the economy, he asserted that Pakistan’s gross public debt would remain at 70 percent of GDP by 2023 as no sharp reduction was possible.

Considering the dismal picture that the PTI government has been painting about the inherited economy and taking at face value the affirmation given by the custodian of the exchequer, one would tend to applaud the claimed success. But the reality is that the PTI government has not been honest in presenting a real picture to the people about the inherited economy as well as the claimed turn-around.

The IMF report released last Wednesday negates the assertions made by the finance minister. Regarding gross public debt-to-GDP ratio, the IMF maintains that it will shoot up to 84.1 percent by the end of the tenure of the PTI government in 2022-23 which means an addition of 12 percent to the 72 percent left by the PML-N government. It is pertinent to mention that under the Fiscal Responsibility and Debt Limitation Act, Pakistan’s debt should not be more than 60 percent of GDP.

On budgetary deficit, which is universally seen as the mother of all economic woes, the prediction of the IMF is very worrying. According to its report, budgetary deficit will increase to 77.2 percent during the current financial year and go further up to 8.7 percent during 2019-20. The PML-N government had brought it down to 5.3 percent in its tenure from 8.4 percent in 2013. The IMF report also does not show any improvement in the fiscal indicators till 2023-24. It sees no tangible decrease in the budgetary deficit till the end of the tenure of the PTI government which it says will stand at 7.7 percent. This claim is based on the premise that revenue will remain below 15 percent of GDP in the next five years, even lower than the 15.3 percent of GDP left by the PML-N government. The IMF has estimated the total financing needs of Pakistan at Rs16 trillion or 42.3 percent of GDP for FY 2019, which it claims will further surge to 46 percent in 2019-20. Accordingly, the estimated expenditure would remain over 22.3% of GDP in the next five years, higher than the level at the end of the last fiscal year.

In view of the economic realities unfurled by IMF, no person in their right mind can conceive any improvement in the economic profile of Pakistan in the next five years. When the budgetary deficit is on the upward curve, public debt is snow-balling and revenue generation promises no increase then how can one claim that the economy will bounce back in the next five years?

The IMF is an international agency and its assessment is based on economic ground realities far removed from political considerations. In third-world countries like Pakistan, economic policies are often subservient to political expediencies. This has been the problem with successive governments which have never dared to be honest with the people.

The likely IMF package which the government claims has almost been agreed to is also a loan which will have to be repaid and add to the already existing debt burden of the country. The current stock exchange situation is also very alarming. Inflation has gone up to the highest level in the last five years and a discernible nosedive has been experienced in the exports of the country.

The turn-around in the economy depends on steps to strengthen the economy through vibrant and forward-looking policies that lead to the transformation of the agricultural economy to the industrial economy, expansion in the exports of the country through enhancement in exports of value-added products at competitive prices, increased revenue generation and reduction in the budgetary deficit. That surely would require bold initiatives on the part of the government, rising above the fear of political repercussions which usher in real structural reforms.

An incisive peep into the policies pursued by the PTI government reveals that it is pursuing the same policies it used to criticize when it was in the opposition. This indicates that the party was actually not prepared to face those challenges the right way and had not given serious thought to the nature of the challenges. It relished the spectacle of reviling the previous government for increasing the prices of gas, electricity and electricity. It also bitterly opposed the amnesty scheme given by the PML-N government.

Now the PTI government is pursuing the same policies. Prices of utilities have been increased repeatedly and the government is also contemplating to announce an amnesty scheme on the same pattern as was done by the PML-N government. So where is the change? Where is the relief that the people were promised from every convenient rooftop?

The reality is that the government does not have a clue as to how to go about the business. It has no choice but to accept the dictates of the lending international agencies, and is wrong in claiming that it can negotiate the IMF package on its own terms. It has already started implementing the IMF’s demands and the rest will be pursued after the finalization of the package. Managing the economy of a country like Pakistan is an arduous and serious task.

Governance is about promoting the wellbeing of the people and changing their economic situation, which does not seem happening in the near future. People are being fed only on promises of future prosperity which belie the economic ground realities. Economic development is also dependent on political stability. The permeating ambience of confrontation between the government and the opposition parties in the name of sham accountability is also acting as a debilitating factor.

The rivers of milk which the PTI government has promised cannot flow without removing political uncertainty and seeking cooperation of the opposition parties. One can only pray for the poor people in the prevailing circumstances.

The writer is a freelance contributor. Email: [email protected]

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