Economic woes Pakistan is currently facing one of the worst economic challenges of its history. Almost eight years of continued economic misgovernance have severely damaged the economy beyond recognition. Weak and frivolous economic managers, ministers and Apna Admi culture (cronyism) have not only damaged the economy but also destroyed key economic institutions/ministries. The present regime, prior to taking charge of the state of affairs, claimed to have a competent team of ministers, fully aware of the challenges, did their homework and were ready to begin working from day one. Thus, they raised expectations of the people of Pakistan who suffered severely from the mismanagement of the previous regime (2008-13). After 19 months at the helm of affairs, sadly enough, it seems that it is the same old damaged car; only the driver of the car has changed. The present government has failed thus far to distinguish itself from the previous regime in terms of overall governance in general and economic governance in particular. It has thus far performed like a rudderless ship, having little sense of direction and purpose and lurching from one crisis to another, primarily of its own making. Pakistan needs better governance through competent people, abundantly available in the country. The current state of Pakistans economy has emerged as a serious threat to national security. Spin doctoring in information age is no longer possible. We must tell the truth to the people and stop cheating the nation by giving a false sense of economic prosperity. Let me now turn to the current state of the economy. There is no doubt that the present government inherited an extremely fragile economy, a nervous private sector; declining investment; slower economic growth; rising unemployment, poverty and inequality; large fiscal deficit; growing debt burden; reckless spending; a looming debt repayment crisis; rapidly declining foreign exchange reserves; rising circular debt and a severe energy crisis. These were formidable challenges by any standard, and required extraordinary courage on the part of the leadership to take unpleasant decisions, called for a strong economic team, and demanded focused attention of the political leadership in addressing these challenges. What has changed in the last nineteen months? Where do we stand today? Investment rate continues to decelerate, economic growth still hovers in the range of 3.3-3.5 percent, and large-scale manufacturing has decelerated to less than 2.0 percent during July-October 2014 as against a growth of 6.3 percent in the same period last year. Unemployment/underemployment continues to rise, more people have fallen below the poverty line and income inequality has worsened. Fiscal deficit has reached all-time high (8.4% of GDP) last year and expected to remain above 7.0 percent this year. Exports continued to exhibit a declining trend and registered a negative growth of 4.3 percent in the first half of the current fiscal year. While governments borrowing for budgetary support declined substantially from the SBP, it has increased equally strongly from commercial banks during the first half of the year. In other words, substitution of budget financing has taken place from the SBP to commercial banks and hence crowding out of private sector continues. Government continues to borrow heavily to build foreign exchange reserves and hence accumulate debt. It has contracted $16.6 billion loan during the fiscal year 2013-14 and 2014-15 and thus far received $5.6 billion from variety of sources. It has added $4.0 billion to foreign exchange reserves until December 2014 by borrowing $5.6 billion. Reckless spending continues, circular debt is still a major issue and energy sector crisis continues with full vengeance. In short, nothing has changed. The countrys economic conditions continue to deteriorate. Yes! Important developments have taken place. The use of a creative accounting to provide false sense of financial stability and economic prosperity is on the rise. Spin doctors are working overtime to paint a rosy picture of the economy even in the era of information age. From the governments perspective, inflation is lowest in many years, interest rate has been reduced, budget deficit has been reduced from 8.2 percent to 5.5 percent of GDP last year and is slated to be reduced further to 4.9 percent this year, foreign exchange reserves have crossed $15 billion from $11.0 billion in June 2013, and the country was saved from external default. These are not mean achievements from the governments perspective. Lowest inflation is a global phenomenon owing to the collapse of oil and commodity prices as major economies of the world are growing slowly (EU, China, India, Brazil etc). Lowest inflation is not the outcomes of the policies pursued by the government. Reduction in the interest rate is the natural outcome of the low inflation. Our real interest rate today is much higher than real GDP growth - a case of unstable economy. Reduction in the interest rate is the compulsion of the SBP. It is now a common knowledge that the government brought budget deficit down to 5.5 percent of the GDP through ENRON accounting - many commentators including myself as well as the SBP have written extensively on this issue. Such kind of accounting will not work forever. To meet the end-December target of the IMF for the sixth review as well as to achieve $15 billion target for foreign exchange reserves, the government and its finance team have closed down the country and inflicted severe pain and difficulties to 190 million people of this country. Petrol crisis was written on the wall. The Ministry of Finance did not release adequate amount of money to Pakistan State Oil (PSO) to import oil. The PSO was writing repeatedly to various ministries since October 2014, warning the government of fuel crisis of serious nature in the making. Between November 28 and December 24, 16 LCs were defaulted on account of not releasing money to the PSO. No one paid any attention, particularly the minister of finance, because he wanted to achieve end-December budget deficit target on the one hand and $15 billion foreign exchange reserve target on the other. What a great achievement? The country is closed, little traffic on the roads, commercial and trading activities are severely hit, people are running from one petrol station to another to find few liters of petrol and the monster of loadshedding is likely to roar again with full force. While Ministers of Petroleum and Natural Resources and Water and Power be held responsible for the current oil fiasco, the minister of finance cannot be absolved of his responsibility as he holds the purse of the nation. Not releasing money in time to PSO to import sufficient quantity of oil has created current crisis, which will last for at least two more weeks. Such bad governance has never been witnessed in the countrys history. Weak and frivolous team placed in key ministries and in key institutions, has damaged the economy and the institutions. How long can we go like this? How long cheating with nation will go on? (The writer is Principal and Dean NUST School of Social Sciences and Humanities, Islamabad) brecorder/articles-a-letters/187:articles/1144021:economic-woes?date=2015-01-21
Posted on: Sun, 25 Jan 2015 03:29:46 +0000