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June 16, 2019

What the future holds


June 16, 2019

Tabdeeli, as promised by the PTI, was supposed to bring in better times for Pakistanis. That’s what the people voting for the PTI thought of tabdeeli – not just improvement here or there but a significantly better quality of life – the kind of quality of life never seen before by Pakistanis.

Education, healthcare, housing, public transportation, water management systems, train services, etc were all going to be far superior than at any time in the past. Equally important was the overall growth of the economy to be, with extremely low prices of essential items and a low interest rate environment for businesses. People also felt that in Naya Pakistan, there would be no IMF, no borrowing on the scale witnessed in the past, no corruption or at least on the scale witnessed earlier, no money laundering and so on.

Most important was the belief that Pakistan would be governed in a manner reflecting the best of the Western world and the best from the golden Islamic era. People were made to believe that there would be no VIP culture, no protocols, no use of personal planes or helicopters or big luxury cars.

Well 10 months after coming into power, we see none of the above. On the contrary, we are now witnessing the most serious financial crunch in many decades. But, according to the new narrative spun out by the tabdeeli folk, things were to get worse before they get better. Unexpected rationale but one that raises some basic questions. First, why was this narrative not part of the economic plan given by the party before the elections – or is this an afterthought justifying poor performance? If there was any hope of better times, the budget announcement has all but ended that faint hope.

The budget is not only the most ambitious in terms of numbers but also the most unrealistic in terms of possible achievement. It proposes additional tax collection, reflecting an increase of approximately 36 percent over and above the actual collection this year. A party which has the worst performance of tax collection in the last 20 years is proposing the highest growth in tax collection in our history – almost impossible.

Similarly, the fiscal deficit proposed is 7.2 percent or Rs3,200 billion in absolute amount. Even assuming we achieve all our proposed numbers, this is going to be the largest fiscal deficit in our history. The fiscal deficit figure presented in the budget is unrealistic. The budget assumes that provinces will generate surplus of Rs400 billion, a highly exaggerated amount. There will be revenue slippages as well –somewhere in the range of Rs400-500 billion plus overshooting the expenditure target. There’s a high probability that we will end with a fiscal deficit of Rs4,000 billion – almost double than the actual deficit in the last year of the PML-N’s rule. This will lead to massive borrowing.

The PM does not seem to remember the amount of borrowing his government has done in the last 10 months. So far, the PTI government has borrowed close to Rs4,000 billion in 10 months and this figure will likely go up further in the next two months. And with the possible fiscal deficit expected next year, total borrowing during this government’s first two years could reach a staggering amount of over Rs9,000 billion. Compare this with the Rs11,000 borrowed during five years of PML-N rule. Yet the PM feels that the Rs11,000 borrowed in five years must be investigated. This shows a lack of basic economic understanding otherwise they wouldn’t be talking of setting up a commission to investigate the amount of money borrowed in the last 10 years.

So where do we go from here? Will the economy get better or worse in the next 2-3 years? Also, what actions has the present government put in place to ensure that things will eventually get better – what reforms, what fundamental changes to ensure economy is fixed on a permanent basis? We haven’t seen or heard any as yet. Finally, and most important, does it have the team to deliver on its promises? Many people will have serious issues with the quality of the team selected by the PM.

Based on the actions and policy decisions taken so far, the future does not look so bright. The IMF agreement calls for stringent economic measures, some of which we have seen in the recent budget. The implication of these measures is already being felt while more hardship will probably be seen in the coming months.

According to independent economists, Pakistan’s economy will continue to slide and get worse in the next 2-3 years. GDP growth, which declined from 5.8 percent last year to 3.3 percent this year, is expected to further go down to less than 3 percent next fiscal year while per capita income will come down to around $1300 vs $1500 in June 2018. GDP in dollar terms will continue to contract till 2021-2022. The worst aspect of the economy will be double-digit inflation, expected to last for the next two years, which will also probably see plummeting growth. More than four million people have already gone below the poverty line in this fiscal year. Another nine million are expected to go below the poverty line in the next three years.

All of this is a consequence of extremely poor economic management by the present government. The PM has already dropped key members of his team. So, he does not have another opportunity to change his team. More important, does the PM has patience to wait another 2-3 years till the economy starts recovering? I have my doubts but we will have to wait and see as we tighten ourselves for harsh economic conditions.

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

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