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June 4, 2019

Murky outlook

Opinion

June 4, 2019

Recently in a meeting with business leaders in Karachi, the PM announced that the economy will start doing well from July this year. This was not the first time the PM made such a prediction about an economic turnaround within months. Immediately upon coming into power, the government informed us that great things would happen within 100 days (at least this was slightly better than the famous 90 days of economic miracles Imran Khan used to talk about back in 2013). Obviously, there was nothing to celebrate when the first 100 days ended.

Then the goal post was moved to the first six months. Rather than any economic miracles, things were getting worse. But Imran Khan wouldn’t give up on predicting an economic turnaround within months. The PM is not the only one coming up with such a positive economic outlook. In early April, an even more bizarre prediction was made by Federal Minister Faisal Vawda. In a live television show, he said that the economy would start improving significantly within 10 days to four weeks. Among other things, he made a startling revelation that the tax collection issue would be completely resolved with people lining up to pay their taxes on their own. Even more fascinating was his prediction that the issue of unemployment would be resolved within weeks. Equally amazing was the prime minister's formula for improving the economy and reducing poverty by providing eggs and chickens to the people of Pakistan.

Our prime minister and the worthy federal minister surely need a basic lesson in economics. Good economic results are a consequence of several factors. Jobs in hundreds and thousands will not be created unless preceded by massive investments in various sectors. In the last 10 months that has not happened – as reflected in the declining investment-to-GDP ratio. A massive cut in the PSDP has also been a contributing factor towards unemployment. The federal minister is probably not aware that, instead of improved job conditions, unemployment has been steadily rising and has continued to do so since the minister gave us this good new; a massive 1.1 million have lost their jobs since the PTI government came to power. And all indications about the economic outlook confirm that that the number of unemployed will continue to rise in the next few years. Even worse is the number of people going below the poverty line since July 2018 – a staggering 4.1 million.

Similarly, tax revenue can increase as a result of improved economic activity. Our GDP has contracted in the last 10 months by a colossal $35 billion. The effects of this contraction can be seen in every sector including a massive shortfall of close to Rs400 billion in tax revenues from its own estimates.

The prime minister has not much understanding of the economy and that’s not unusual for any chief executive of the country. Which means that he needs to be surrounded by outstanding advisers with strong economic background. More important is whether he is listening to his economic advisers. The results and decisions so far indicate that he has failed to find good economic advisers and has been unable to listen to good advice.

The opposition has been critical of the PTI’s economic management – as any opposition would be – but it’s the PM himself who has shown complete dissatisfaction with his team of economic advisers. Within nine months of coming into power, the PM has removed the finance minister, finance secretary (in less than two months), governor SBP, chairman FBR and chairman Board of Investment. Removing all the key people of his economic team is an open admission of the massive failure of the government's economic performance. It also shows that no preparation done prior to the elections and further that the selection of his team was extremely poor. Never in our history has economic failure been so breathtaking as we have seen in the last 10 months – to the extent that the chief executive himself had to intervene by removing all key members of his team.

The lesson for the PM is to understand that there are no short cuts to economic prosperity. He must also accept that his lack of understanding of Pakistan’s economic challenges largely contributed to the mess we are in. In addition, his simplistic solutions to serious problems were never going to work.

So, we now embark on the new experiment with a team of economic advisers – largely imported from outside Pakistan. Whether they perform or not will be seen in the next few months or years but none of them seems committed to the promises made in the PTI manifesto. Rather, they seem more attuned to the international financial institutions (IFIs). The new finance adviser has served in this position for three years between 2010 and 2013. When he left, the economy was in tatters. Growth rate remained below three percent while fiscal deficit in his last year was over eight percent. Inflation remained mostly in the double digits and foreign exchange reserves had fallen abysmally low.

So, the question is: do we forget the hundreds of promises and commitments made by the PTI leadership prior to the 2018 elections? While answering this question, the prime minister needs to sit with his team and understand the depth of the economic crises we are in and finally tell the truth about the future and at least share responsibility for his government's first 10 months' performance.

The writer is former governor Sindh and former minister for privatisation.