Busting the growth myth

LAHORE: Some positive news on economy have started pouring in with exports moving up appreciably, though still below double digit, and also Moody’s upgrading our sovereign rating, but there is still a long way to go.

The journey of economic rebound has not really started. The rosy picture that this government is highlighting is more due to economic maneuvering than real economic progress. The risky rise in foreign exchange reserves is not due to any betterment in economic performance but is due to constant influx of hot money in Treasury Bills of Pakistan. Most of the bonds are of 3 months duration, which means we have to pay back foreign currency every three months along with 13 percent interest on that investment.

Currently the repayments are small but when they would reach $4-5 billion (it currently is around $1.3 billion) then we might be retiring $1 billion per month along with $130 million interest. Is this increase as well as its accompanied interest sustainable? High cost of borrowing is not a good option in an economy already spending major chunk of its tax revenues on debt servicing.

Coming to exports yes they have risen by 9.6 percent in November but the average increase in last five months is only 4.8 percent. This increase would not sustain this economy. We reached $25 billion export volume in 2013 and 6 years later we might touch $24 billion if they continue to grow at present pace. Ideally we should have been at $35 billion level by now if we look at the average increase in exports by other regional countries.

We are rejoicing the first current account surplus without any significant increase in exports. That means the major chunk of saved foreign exchange came from compressed exports. Compressed exports also include less import of raw materials consumed by our industries. We have unfortunately not started producing those raw materials locally but the compression is due to subdued local demand. This means the growth has been compromised. We cannot come out of deep waters until we take steps to boost exports. This government continues to hide bad news and highlight good ones.

The export figures are announced by the Pakistan Bureau of Statistic (PBS) on its website on the 12th of following month. But this time around since the exports increased 9.6 percent the announcement was made on December 02. However the performance of large scale manufacturing has not been announced by the PBS for the months of October and November. Why has this announcement been delayed?

The large scale manufacturing (LSM) posted a decline of 5.9 percent in the first quarter of this fiscal. People interested in Pakistan’s economy want to know whether the decline has increased or decreased. The GDP growth would largely depend on the growth of LSM.

The government functionaries are boast the gross domestic product growth this fiscal will be higher. How is it possible? The LSM is on the decline, the private sector credit has dried out, the interest rates are a 13.25 percent highest in the region and inflation is still hovering around 12 percent. The food prices are persistently rising. The government should clearly point out the factors likely to trigger growth.

As far as the households are concerned, they are mostly in deep trouble. The power tariff has seen an abnormal increase in tranches on the instructions of International Monetary Fund. No meaningful efforts have been made to eliminate inefficiencies, corruption, and theft in the power sector. Higher bill recoveries are because of higher tariffs.

A year back the power utility bill on the consumption of 280 units was around Rs4,800, now it has shot up to Rs7400. The gas charges have been increased in an engineered way as you cross one brick the bill jumps 10 times. This is unfair and amounts to exploiting the consumers. The gas theft continues unabated. The rates of petroleum products are very high.

The cut of 25 paisa per liter on petrol is a cruel joke with the consumers. The price control committees, if they exist, have failed to arrest increase in the rates of daily use items. The daily wagers are in dire straits. They used to get work at least five days a week and now they feel lucky if they land a job even twice a week.