Thursday October 21, 2021

Performance claims without delivery

September 16, 2021

LAHORE: It is futile to compare Pakistan’s economic performance with its neighbours, all of whom have posted sustained high growth. Our planners prematurely claimed that Pakistan’s performance post pandemic was the best, but Trading Economics statistics reveal it is not true.

Trading Economics claims that it provides accurate information for 196 countries including historical data and forecasts for more than 20 million economic indicators, exchange rates, stock market indexes, government bond yields and commodity prices. The data is based on official sources, not from third party data providers.

Our planners have regularly compared our economic performance post Covid-19 with India. However, the statistics of economic performance from September 2019 to September 2021 reveal that India’s GDP grew by 20.1 percent during this period.

India is placed among the 10 highest growing economies in the world in the last one year. Pakistan clocked a GDP growth of 3.94 percent during the period under review as revealed by Trading Economics. This growth though is commendable in view of negative growth a year earlier. Still Pakistan’s GDP growth was lower during this period than Bangladesh that posted 5.47 percent growth and China’s 7.9 percent growth.

It is correct that Pakistan was one of the first countries to open to the world after the pandemic and that advantage has paid us well, but China was close behind, India regained control after a few months and Bangladesh has finally reached the pre-pandemic economic activity level.

China, India and Bangladesh have contained inflation remarkably well at a time when global commodity rates remained very high. China has the lowest inflation of 0.8 percent; the inflation is 5.30 percent in Bangladesh and 5.36 percent in India.

Compared with that inflation, Pakistan is averaging 8.4 percent. This despite the fact that India has higher fiscal deficit of 9.1 percent than Pakistan’s 8.4 percent

There are some issues that need to be addressed before we could embark on a sustained growth path. Take for instance the interest rates that stand at 3.85 percent in China, 4.0 percent in India and 4.75 percent in Bangladesh.

In Pakistan the interest rate is at 7 percent, very high in comparison to its neighbouring countries. On top of that, the central bank is not in a position to lower the rates in view of high volatility of rupee and higher inflation. In fact, it may soon be constrained to increase its policy rates to curb inflation and rupee volatility. Lower rupee value is making imports very expensive.

Another contentious issue is that of ever-increasing debt of the state of Pakistan. Our debt to GDP ratio is 87 percent compared with 69.62 percent in India, 66.8 percent in China and only 31.70 percent in Bangladesh.

Our main drawback is that we are constrained to seek more loans on a regular basis that further increases our debt and lowers the ability of the government to provide relief to the people or initiate development projects. Even the existing development projects are delayed, which increases the costs beyond the original estimates.

Foreign debt is also growing at a fast pace in Pakistan; it currently stands at $117 billion compared with the liquid foreign exchange reserves of only $20 billion. In other words, we have accumulated six times more foreign debt than our foreign reserves.

The foreign debt in India is $570 billion but is foreign exchange reserves amount to $642 billion. This means that even if India pays all its foreign debt, it would still be left with over $70 billion in foreign exchange reserves.

The foreign debt of Bangladesh amounts to $45 billion while its foreign exchange reserves are $44 billion. The situation is manageable for Bangladesh.

Population growth is also a handicap for Pakistan. In 1971 when Bangladesh attained independence, its population was slightly higher than Pakistan.

Fifty years later, the population of Bangladesh is 165 million and that of Pakistan is 221 million. More than 20 million children in Pakistan are out of school compared with around two million in Bangladesh. We have the lowest tax to GDP ratio among the three economies of the region. Our national saving rate is pathetically lower than all these economies.

We have numerous hurdles to surmount before we can embark on a sustained growth path. We need to empower our poor and give them their due right in policymaking. We have to move very fast from an elitist economy to an inclusive one. Pakistan has the potential; it simply needs sincere, selfless, and fair leadership.