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September 19, 2019

Planners paint rosy picture despite economic polarisation


September 19, 2019

LAHORE: Never before has there been this much polarisation on the economy of Pakistan. The confidence of economic managers is mind boggling; they even term the sudden International Monetary Fund (IMF) team visit as routine as if they came here to appreciate their work.

The leader of the IMF delegation has clearly stated that there would be no change in IMF targets on Pakistan’s economy as those were suggested by its own economic managers.

Earlier, rumours were circulating that IMF staff committed error in calculating the budget deficit for year 2018-19 and its projections for the next fiscal year were based on that judgment of error.

The IMF review mission would visit Pakistan as per schedule in October or November to review the country’s performance in the first quarter of this fiscal.

The economic managers still boast that the targets fixed with IMF would be met.

This time around they are pinning their hopes on non-tax revenues. This includes renewal fee of licenses to be paid by the mobile operators, some privatisation proceeds (if they go through).

It is almost certain that there would be a slippage in tax revenue target. Surprisingly, the government still expects to increase tax revenue by almost 40 percent at a time when the economy is shrinking.

The present government hopes that the growth target of 2.4 percent would be met (though with difficulty). The growth last fiscal was 3.3 percent of the GDP. The decline in growth is expected to be around one percent of the GDP.

This growth target was shared with the IMF during negotiations for loan. Even then the government suggested that a hefty growth in tax revenue would be achieved.

What could the IMF do when our government was itself committing to increase revenues? This government informed the IMF staff that the primary deficit in 2017-18 would be 1.6 percent of GDP.

IMF had no reasons to doubt these estimates. On the basis of this and in view of expected 40 percent increase in tax revenues, the IMF asked the government to restrict the primary deficit to 0.6 percent of GDP.

However, as it finally turned out the primary deficit reached 3.6 percent of GDP. There was slippage in revenue collection as well.

We started the new fiscal year with a big baggage of missed targets. Most of the economists predicted that the targets fixed with IMF would not be met either.

Now the economic managers are in a hurry to sell family silver. Every institution from National Bank of Pakistan to the Oil and Gas Development Company are on sale.

The power plants established by the previous Punjab government and producing low cost energy are up for sales too. Let us presume that the government’s privatisation plan succeeds and it is able to generate non-tax revenue of Rs1,000 billion! What next?

This programme would run for three years. The targets in the next two years would be equally stiff. We got loans from Gulf countries, Saudi Arabia and China for a period of one year. We are going to roll over those loans this year, but for how long. Would we be rolling them over in the next two years as well? Will the creditors agree to our request? We have a lot at stake.

There is the question of neutrality on Arab-Iran issue. Would the creditors tolerate our neutrality? They have shown their independence on the Kashmir issue by remaining neutral and we had to swallow the bitter pill.

The IMF, as everyone knows is highly influenced by the United States. We do not know what the US would want our government to do.

In a bid to gather loans from any quarter and at any cost, we have created a mess in the economy. The saddest part is that in the process we forget our economy.

All economic management in past 13 months has been on obtaining loans, but no effort was made to boost industrial production.

We paid lip service even to agriculture. This sector with proper facilitation and policies has the potential to take Pakistan to safe water within three years.

Livestock alone could earn us billions of dollars if prudent policies (not subsidies) are adopted. The government should deploy some serious head of commerce.

The present head was only last week boosting of turnaround in exports on the basis of export performance in July. He had the stats for August where the export performance was dismal but he preferred to ignore the bad news.