April 15, 2019 (MLN): Ever since it came into power, PTI led government has been portraying a disastrous picture of the economy and has been accusing previous governments of pushing Pakistan into a financial abyss.
Few months after PTI-led government assumed power, the Finance minister began claiming that the PTI government had inherited a fragile economy with deepening fiscal deficit, increasing current account deficit and declining foreign direct investment, and now with the help of prudent policies by the current government, the progress of the economy has just instigated with the economic indicators moving in the right direction.
To back his statement, he would often point towards few indicators, like the depletion in reserves that had decelerated mainly due to the arrival of the first billion from Saudi Arabia and rising off-take of credit from the private sector.
In his recent speech, while interacting with the media persons he optimistically said that; “steps are being taken to curtail budget deficit and imports. The external loan taken by PTI government in 9 months from July-March is 1/3rd of the loan taken by PMLN in same period last year. When you see us hit the 12-month mark of our government, it is my prediction that you will see a $6-7 billion decrease in Pakistan’s current account deficit.”
In light of these statements, are the economic indicators truly moving in the right direction? To separate facts from fiction, key economic indicators need to be analyzed as facts don’t lie.
During the tenure of PML-N government, the current account deficit (CAD) stood at $18 billion. By adopting exports led growth hypothesis by the current government, the good news is that the CAD is shrinking now. But the bad news is that the rupee has lost more than 30% of its value against the US dollar, while the country’s exports have only increased negligible by 0.1% and imports have only dropped by 8% during nine months of the current government. This clearly suggests that the devaluation focused strategy is not working.
Looking at the budget deficit which is the root cause of most of the financial crises, the PML-N left a deficit of over Rs. 2 trillion, whereas the fiscal deficit during first half of the ongoing fiscal year was recorded at Rs. 1.03 trillion (2.7% of the GDP) compared to same period last year when it accounted for almost 2.2% of the GDP. If we include the numbers of accumulated circular debt, the deficit will be close to over Rs 2.5 trillion.
In addition to this, the inflation increased by 9.41% percent in March 2019, which is at the highest level in five years.
Nevertheless, the latest adverse development is that Pakistan's economic growth is projected to dip in FY2019. In 2018, Pakistan’s economic growth rate rose to 5.8% from 5.4% in 2017. Moreover, ADB, World Bank, Moody’s and S&P have projected real GDP growth to slow down to 4% in FY19. This slow down would mean an increase in the rate of unemployment.
Wistfully, in world outlook 2019 report, IMF has projected Pakistan’s economy to slow to 2.9% in 2019 and 2.8% in 2020 with continued fiscal and external imbalances weighing on confidence.
These facts tell us that surging inflation, stagnant exports, heavy government borrowing, soaring electricity and gas tariffs, are the issues that are still not dampening despite various attempts to tighten fiscal and monetary policies. This means that the officials of the current government are trying to use the same data points to create optimism.
-Inconsistency in policies-
It's been almost nine months since the PTI-led government came into power, and there has been nothing but a lot of inconsistencies in the policies, which have clearly been observed as the current government has contradicted its previous statements many times.
The prime minster promised that the government will create millions of jobs after taking his oath, which seems to be quite difficult now given the current scenario of the country’s economy. While addressing this issue, Finance Minister recently said that in the slowing growth scenario it is difficult to create jobs but it also depends upon the priorities of the government. “Tourism, small and medium enterprises (SMEs), information technology (IT), and housing all are priorities, and all these sectors have the potential of job creation,” he said.
“Some investments create more jobs, some less,” he added, arguing that the government's priority areas would create disproportionately more jobs.
Few months ago, the current government was blaming the previous governments for increasing prices of oil and gas and said that the lower class won’t face increased prices of goods. After that, the government raised prices of petrol and gas despite being a critic of it. This has caused problems for the lower class.
Finance Minister was always seen criticizing previous governments for seeking loans from IMF during his time in opposition and said that he won't go to IMF. But now the tables seem to have turned around as the current government is going to IMF for help, which points towards another u-turn.
In a recent interaction with media persons, Finance Minster, despite being a critic on the subject during his opposition, announced that the government is all set to approve a tax amnesty scheme, to encourage individuals and Corporations suspected of hiding their wealth from the tax authorities. This shows another contradiction from his previous statement.
In second Supplementary Finance Bill, government imposed restrictions on non-filers to purchase new cars. One cannot disagree with the intentions of the government behind it, but in the backdrop of this step, new car sales were down, direct bookings were down, and thousands of people had claimed refunds. After that government lifted the ban on non-filers for purchasing motor vehicles by enhancing withholding tax rates for non-filers on purchase and transferring the registration of motor cars in order to generate sizeable revenue.
Likewise, the Federal Excise Duty (FED) on 1700cc+ vehicles introduced in the Supplementary Finance bill is now expected to be removed. If this happens, we shall witness another inconsistency within the policy stance of the current government.
Prime Minister Imran Khan had previously said that a leader who does not take “U-turns” according to requirements of the situation is not a real leader. However, if this pattern continues it will force people into believing that the country is in the hands of leaders who have little knowledge of how to run an economy, successfully.
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