The Minister for Economic Affairs Hammad Azhar no doubt tasked to present a defense of the state of the economy amidst rising public clamour against accepting the upfront International Monetary Fund (IMF) conditions, instead of an appropriate phasing that would have eased concerns over the possibility of socio-economic unrest, presented the same flawed narrative. Before once again challenging this narrative point by point one is baffled as to why the actual architects/signatories, including Special Advisor to the Prime Minister on Finance Hafeez Sheikh, to the agreement with the IMF, thought it prudent to allow Azhar, a lawyer by education and training, to defend their policies.
Be that as it may, Azhar began by comparing apples and oranges reflected by citing improved performance of macroeconomic indicator(s) by carefully selecting the year during a previous administration (without mentioning mitigating factors); and where such a comparison did not show an improvement he cited percentage improvement in comparison to 2018-19 (when the PTI was in power for more than 10 months) given that the base was very low.
Azhar claims that have repeatedly been refuted by Business Recorder are as follows: (i) the current rate of inflation during the first year of the PPP led government was at least 10 percent points higher than today (but at the time price of crude was over 140 dollars a barrel – more than double what it is now); he did not mention that Hafeez Sheikh cut inflation by half by reducing the weightage of food by 6 percent overnight; (ii) foreign investment (read hot money) of 350 million dollars has entered Pakistan – an insignificant amount given our weekly import bill of one billion dollars. Azhar failed to mention that the cost for this inflow was extremely high as the discount rate was upped to 13.25 percent in July which raised not only government’s debt repayments from what was budgeted but also the cost of production resulting in negative 7 percent growth in large scale manufacturing sector (LSM) as per government data with repercussions on downstream industries; an anecdotal survey of Islamabad by BR indicates that small and medium enterprises cut down on the number of staff employed due to lower demand; (iii) stock market index surged by 500 points, an index that does not reflect on around 99 percent of the country’s population as they are not engaged in the stock market. Pakistan’s stock market has 40 major players who can and do manipulate the market as and when the government agrees to extend fiscal incentives; (iv) budget deficit has reduced by 50 percent and here too sadly it was the PTI government that fueled the deficit in 2018-19 to an unsustainable 8.9 percent – the highest in living memory. Be that as it may, there is evidence to suggest that revenue has risen not due to widening of the tax net but due to higher taxes levied – a factor that was evident during Ishaq Dar’s tenure as the finance minister which the PTI rightly criticized. Expenditure has not been curtailed in the budget for the current year – current (budgeted to rise by 30 percent barring defense) or development – and hence the onus of raising revenue will fall on the taxpayers especially if the privatization plan does not proceed as planned; (iv) volume of exports has risen indicating a rise in output – a claim that is untrue given that volume of rice exports has risen only and that too because of China’s decision to import one billion dollar worth of rice from Pakistan. The volume of all other major exports has fallen; and (vi) circular debt has been rising not by Rs 38 billion a month during the previous government but by 12 billion rupees a month – data that is simply not verifiable and at odds with the report on the IMF website. Additionally, by maintaining that the rates of electricity have not increased, so claimed a press release issued by the Ministry on Tuesday after Nepra raised rates, but that the fuel adjustment charge has been upped, and bills will not rise significantly as a consequence (partly due to lower electricity consumption during winters) is hardly likely to convince the populace that all is well with the energy sector.
To conclude, Prime Minister Imran Khan has been provided a narrative that is not accurate or pro-poor, in spite of around 200 billion rupees more for the Ehsaas propgramme in comparison to the allocation for Benazir Income Support Programme of last year. The rising ranks of the unemployed and rising inflation, with no pay rise this year by the private sector, raises the ugly prospect of socio-economic unrest. There is a need for the Prime Minister to heed an alternate narrative with the objective of making an impartial evaluation of the claims of his economic team leaders.
(This news/article originally appeared in Business Recorder on November 7th, 2019)