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December 8, 2019

The real indicator

Opinion

December 8, 2019

Moody’s moves Pakistan from ‘B3-negative’ to ‘B3-stable’: Is this something to cheer about? The fact is that ‘B3’ is the last category before ‘C’ where countries that have defaulted are placed.

For a powerful country like Pakistan being in ‘B3’ should be embarrassing. As far as Moody’s is concerned we have seen better days. In 1994 (PM Benazir Bhutto), we were ‘Ba3’. In 2006 (President Musharraf), we were ‘B1’. Is this a real indicator of economic performance? Does it even mean anything?

Current account: Our current account deficit has come down from $19.9 billion last year to $12.75 billion this year. Is this something to cheer about? Fact: We have depreciated the rupee by 47 percent. Fact: Our exports have gone up by a paltry 4.8 percent (July-November). Fact: Our GDP growth is down from 5.5 percent to around 3 percent. Conclusion: We have managed to bring down the current account deficit by chocking the economy. Is this something to cheer about?

Yes, imports have fallen from $19 billion to $14.65 billion. In essence, the current account deficit has shrunk because of an alarming slowdown of the economy-and not because of any significant growth in exports. Is that something to cheer about?

Yes, a 36 percent drop in our current account deficit is certainly good news for the IMF, the Paris Club, commercial lenders, multilateral and bilateral lenders. Yes, their dollar-denominated loans are more secure now than before. But, this has been achieved at the cost of a sharp slowdown in the economy that has caused at least a million Pakistani jobs. Is that something to cheer about? Is this a real indicator of economic performance?

Hot money: As per the latest data released by the State Bank of Pakistan (SBP), foreign investors bought $1.097 billion worth of T-bills between July and November 2019. Is this something good? Yes, it is good for as long as it keeps coming in but foreign investors are buying our T-bills just because of the awfully high rate of interest we are offering. This is ‘hot money’ and financial history is witness that it runs away as fast as it comes in. Is this a real indicator of economic performance?

Look at the cost of this hot money: The government’s interest expense has gone from Rs1.9 trillion last year to Rs2.9 trillion this year. Imagine: our government managed to attract $1.097 billion by incurring an additional interest expense of $6.5 billion. Does that make sense? Imagine: Pakistan’s non-performing loans have soared to Rs800 billion. Is this something to cheer about?

GDP growth: Last year, our economy grew by 5.5 percent. This year, the preliminary estimate of GDP growth is 3.3 percent (by the Pakistan Bureau of Statistics). That’s a loss of Rs900 billion and this loss has real life consequences: Around 1.2 million Pakistanis out of job and some nine million Pakistanis pushed into poverty. Lo and behold, the ADB’s forecast for the following year is 2.8 percent – and that means additional job losses. This is the real indicator of economic performance.

The writer is a columnist based in Islamabad.

Email: [email protected] Twitter: @saleemfarrukh