Fiscal gimmickry in vogue

LAHORE: Non-performance is being hammered as a great economic success through the media for the first time in Pakistan’s history, making some believe that most of the economists are on the wrong foot in criticising the performance of the present regime.

Dar was accused of acting like an accountant to balance the country's accounts through jugglery. Hafeez Sheikh has managed to engineer the economic indicators in a way that gives a very rosy picture of the economy.

Before the current finance minister started negotiating with the International Monetary Fund (IMF), he asked the central bank to print a lot of money. Then he promised the IMF that the Pakistan government would not take money from the central bank.

Money that was accumulated from SBP was enough for the government to not only post a positive primary surplus before the approval of the first tranche by the IMF, but also carryover huge amounts for next quarter.

The government thus was again able to remain within the primary balance, as dictated by the Bretton Woods Institution for the second tranche. This is despite the fact that during this period the finances of the federal government were in shambles and its tax revenue collection was lower than last year's tax collection of the previous government.

Another gimmickry was to limit the deficit of the government to primary deficit only (the debt servicing and defence expenses were excluded). It was never done before at least for Pakistan.

Probably Sheikh’s influence played a part in this. Pakistan’s debt servicing in the last two years increased by Rs1,000 billion, as the government accumulated loans in the last two years.

Since the government had to account for primary deficit only, it was not worried about accumulating loans.

After the induction of this government, the manufacturing sector nosedived, posting negative growth for over a year. Now that the sector has started growing from a very low base, the government touts this as a revival of the economy.

We have to see how much capacities are lying vacant in different sectors and how many mills have closed down for good. There is no doubt that the textile sector is operating at full capacity, but it is truncated.

More than 100 textiles mills have closed down with no chances of revival. Numerous small exporters in the value-added sector have succumbed to the financial pressures.

The medium and large value-added industries are operating at full capacity with orders booked for three to six months. This is the reason why despite operating at full capacities, value-added exports have not gone up by miles.

In basic textiles, the production has declined because truncated capacities and exports of both yarn and fabric are constantly in negative.

It would be unfair not to appreciate the government for releasing the exports funds quickly and abolishing duties on imported inputs used in textiles. This has made the exports competitive, but the capacity constraints hamper exploitation of full export potential.

Imports have declined appreciably, but it also retarded growth. We posted the first negative GDP growth in the last five decades.

Moreover, we compare the imports with the last two years of the previous government when China-Pakistan Economic Corridor (CPEC) projects’ financing was at its peak. That financing almost halted after the installation of the new government.

The current account deficit would shoot up if the Chinese restart financing of mega projects under CPEC. It has not released the $6 billion already approved financing for the rail line project.

It is reported to have been demanding further guarantees from the government of Pakistan. You keep the major development stalled; you will not face current account deficit.

Remittances have also recorded an unusual increase of over 25 percent in the first five months of this fiscal. This is partly due to the incentive package announced by the State Bank of Pakistan to facilitate overseas workers.

But it probably is the last hurrah of many expatriate Pakistanis who are coming back after losing their jobs, particularly in the Middle East. They are remitting back their savings and the job severance packages they got from their employers.

Thousands of workers in UAE, Kuwait and Saudi Arabia have been shown the door. They will seek employment which is scarcely available in our country.

Overall, the economic performance of the government is pathetic. It failed to regulate the prices of daily use essential items.

It has remained soft on hoarders and cartels. The corruption and theft in the power sector has further increased.

The aviation industry is in trouble around the globe for lack of passengers due to Covid-19. Our airline is in trouble because of other reasons that have got nothing to do with Covid-19.

Our planes are barred from flying to Europe, United States, and many other countries because of alleged incompetence of our airline staff and below standard maintenance of PIA’s fleet.