The Finance Division, in response to severe criticism on the significant negative fallout of its policies on national output, issued a statement that was patently incorrect, a verifiable fact based on data released by a concomitant government entity. The statement claimed that on the agriculture front national agriculture emergency programme had approved 8 mega projects at a cost of 235 billion rupees, data at odds with the revelations made by the architect of this programme Jehangir Tareen on 2nd July 2019 who had announced 16 projects at a cost of 309.7 billion rupees with no cotton specific allocation – an omission that was pointed out to him given that cotton is a major raw material for the textile sector, which barring seasonal and cyclical fluctuations has maintained an average share of 59 percent of total exports as per The Economy Survey 2018-19.
To add insult to injury the statement further argued that estimates, which are routinely based on a ‘wish list’ in this country, suggest that cotton output would increase by 3 million bales in the current year which would impact on growth of large scale manufacturing (LSM) sector. The authors of the statement either deliberately ignored or simply were unaware of the very disturbing data released the very same day by the Cotton Crop Assessment Committee: downgrading the cotton output estimate by a whopping 33 percent in the current year i.e. from 15 million bales to 10.2 million bales. Clearly the proverb the right hand is not aware of what the left hand is doing comes to mind in this context.
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Be that as it may, the Finance Division would surely have been aware of the data released by the Federal Bureau of Statistics (FBS): negative 3.64 percent LSM growth during July-June 2018-19 with a slight dip in textile sector and a 7.2 percent decline in production of food, beverages and tobacco, 8.4 percent in coke and petroleum, 7 percent in pharmaceuticals and 3.6 percent in chemicals. The LSM sub-sectors that registered significant growth levels had a total weightage of less than 10 percent in LSM. In June 2019, LSM fell by 5.1 percent while in July the figure is a little over negative 3 percent, a decline due to the low base in the previous month.
The contention in the statement that the government is providing focused incentives/subsidies to the industrial sector was challenged by the group of the most influential 30 business people in the country that met first with the Chief of Army Staff and then the Prime Minister this week past and complained that many of these incentives were not being passed on to them including: (i) the commitment to charge 7.5 cents per unit of electricity (as discos were adding on surcharges), (ii) the high interest rate due to the historically high and untenable 13.25 percent discount rate set by the State Bank of Pakistan (untenable from the perspective of the business community) had jammed the wheels of industry, and the (iii) exports development package as well as long-term trade financing facility were unable to promote exports as envisaged due to other negative factors ranging from investigations against businessmen by the National Accountability Bureau to the rejection of use of national identity cards for all purchases/sales and the levy of sales tax on domestic sales (which fuels domestic inflation) and not on exports. Since the high level meetings decisions have been taken backtracking on these issues as the argument that to change the status quo for over 70 years in one go is simply unrealistic has merit.
What is equally disturbing is the fact that small and medium enterprises have scaled down their staff in response to the decline in the number of their clients, as per an anecdotal survey carried out by Business Recorder, which, in turn, is attributed to the high rate of inflation; and with retrenchments ongoing in the private sector few, if any, private sector entities have been in a position to grant a pay rise commensurate with the rate of inflation for the current year. The pay rise is therefore only applicable to civilian and military personnel, barring the senior officials who have voluntarily agreed to no pay rise this year.
The statement also refers to the rise in the number of social programmes for the poor – 80 billion rupees more for Benazir Income Support Programme expected to have a spill-over impact on private sector activities. With the numbers of unemployed rising and inflation projected to rise to 13 percent by the end of this year in IMF documents uploaded on its website as well as in the budget documents, an 80 billion rupees increase in BISP allocation is unlikely to arrest the rise in poverty levels in this country.
This newspaper supports the IMF programme to the extent that it seeks to correct some long-term existing irregularities including a market-based exchange rate and a positive real discount rate. But the newspaper is opposed to over-correction and today the rupee is undervalued to the tune of around 7 percent and the discount rate is positive 4 to 5 percent which in effect is throttling the private sector’s access to credit. Hot money, an objective of the Governor SBP, may increase foreign exchange inflows but would also increase the country’s long-term indebtedness; besides there is no guarantee that hot money leaves the country as and when another country sets a rate even higher.
It is about time the government revisited some of its policies with a view to making appropriate adjustments in the light of the true state of affairs and within the parameters set by the IMF.
(This news/article originally appeared in Business Recorder on October 9th, 2019)