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August 7, 2019

The one-year scorecard

Opinion

August 7, 2019

July 25, 2018 ushered in a new era in our country’s history. Never in the past was a party was coming into power with so much hope and so many expectations. For many, a dream was coming true. The expectations were justified based on what was drummed up and committed consistently over the years, especially in the months preceding the elections of July 2018.

First, the 100-day mantra was unveiled, promising visible change. Of course, nothing of the sort happened in the first 100 days. The government did try to give it a spin by holding a big event in the Convention Hall in Islamabad but except for wasting government money, nothing else was achieved.

In the last one year, the government has failed on every front. From governance to economic management to serious goofups on the foreign policy front, it was evident from the first day that this government had no understanding on how to manage the country. So where did they go wrong. First, the commitments were all simplistic and based on assumptions. The entire success revolved around the integrity and credibility of Imran Khan. I have mentioned them earlier but its worth recalling some of these assumptions: i) the PTI claimed that there was corruption to the tune of Rs12 billion per day, and that this amount would be saved once Khan were in power; ii) the party also claimed that $10 billion worth of money laundering was taking place per year, and that when in power this leakage would be stopped; and iii) that prices of utilities and other items increased only because of corrupt rulers, and that once Khan would be in power, there would be no price increases.

After one year in power, none of the above has come true. The tax situation has worsened, showing negative growth after more than a decade. The foreign exchange reserves position has worsened despite record foreign borrowings. And inflation has almost doubled in one year despite a significant increase in SBP policy rate. The latest July data shows inflation at a 68-month high – with certainty that it will go further up.

The commitments also included vague and hilarious proposals such as five million houses and 10 million jobs. Again, there was no rationale behind such commitments. If the economy was to grow in the range of 2-4 percent in the first four years of the PTI's rule, as they claim it now, why would they commit an average of 20 lakh jobs annually over five years. With our population growth as it is, we need to grow at around seven percent to provide these many jobs per year.

Whatever the plan, the execution was even poorer. The team selected by the PM had no experience, no understanding of complex issues and in most cases incompetent. The few good ministers were surprisingly removed within the first few months – either under pressure from the IMF or due to a complete lack of understanding on the part of the PM. The replacements are all technocrats with no commitment to the party or its economic programme.

With no preparation, poor planning and an extremely incompetent team, the results were never going to be good. That the results would be disastrous, as they have been, was also not visualized.

A summary of the results will show how bad the performance has been. Consider the following: GDP growth, which had consistently gone up during the PML-N period and closed at 5.8 percent, came down significantly. Against a target of 6.2 percent, it is expected to close even lower than 3.3 percent as per latest data – most probably at 3 percent or slightly lower. As a result, the overall economy has shrunk by a massive $33 billion in one year.

Secondly, tax revenue closed at Rs3,820 billion, showing negative growth in spite of the Rs70 billion collected through the amnesty scheme. Targets were set time and again but consistently missed. Tax-to-GDP ration has also gone down below 10 percent after a consistent upward trend in the last five years. FDI has plummeted and is down more than 50 percent.

One of the central focal objectives of the PTI’s economic plan was the containment of fiscal deficit. The result is a complete disaster. We will post fiscal deficit of around 8.3 percent – the highest in recent memory. High fiscal deficit has a direct consequence on the amount of borrowing. That is why our borrowings in the just concluded fiscal year were the highest in any one year in our history.

We saw massive devaluation in the last fiscal year, with the rupee tumbling against the dollar from Rs120 to Rs160. Despite this, exports actually declined last year. During the PML-N tenure last year, exports went up by 13 percent. Further, massive devaluation led to significant price increases. In order to stem the rising prices, the SBP consistently increased its policy rate – going up from 6.25 percent to 13.25 percent at present. That had its own negative impacts. First, the interest costs skyrocketed making many businesses un-competitive. Second, the overall economy further slowed down.

This economic slowing down policy led to disastrous consequences – pushing more than 45 lakh people below the poverty line and creating unemployment on a large scale; uncertainty became the order of the day. The stock exchange has almost collapsed over the last one year. Agreed that the stock exchange is not a barometer of our economy, but it does represent an important indicator and represents the lack of confidence on the part of the investors including foreign investors.

This is just a snapshot of our economic performance over the last one year. Surprisingly, even the government admits that the economic situation is alarming. The economic policy to slowdown the economy has completely backfired. As a result, our economic problems will likely get even worse in this new fiscal year and the year after this. The government has again missed its revenue target for the first month of this fiscal year, representing both poor planning and actual performance.

PM Imran Khan promised tabdeeli and surely people have not only seen it but also felt it – but unfortunately for all the wrong reasons. Will the second year be any better? According to economists, not likely. Will the third year or fourth year any better? Not likely, according to independent economists and World Bank / IMF estimates. The people thought that the current government would bring in 'tabdeeli'. It did, but not in the way they thought it would.

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

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