Economic Progress?
The government has released a paper containing details of its two-year economic performance. This merits a fact-based comparative analysis to understand the true picture. The way to do this is to examine key economic indicators which the PTI government inherited from the PML-N in 2018 and study where these stand at the close of two years ending FY20.
Gross Domestic Product (GDP)
GDP growth is a key indicator as it reflects overall economic activity in a country that provides jobs opportunities, reduces poverty, and increases per capita income. It declined from 5.8 percent to 1.9 percent in the first year and further slumped to a negative 0.4 percent (after 68 years) at the end of the second year. Global financial institutions have stated that the negative growth of 0.4 percent for FY20 has been understated by the government and it would finally end up around negative 2 percent when the revised figures will be released in due course; as the incumbent government had revised last year its official GDP growth figure of 3.3 percent for the first year to 1.9 percent. The size of GDP has shrunk from $315 billion to $264 billion in two years, resulting in a national income loss of $51 billion. Consequently, per capita income which had increased by 24 percent during FY14-18 to $1,652 has unfortunately reduced by 16 percent to $1,388 in two years to FY20.
After coming to power, PTI devalued the currency by more than 40%. However, export ended up with negative growth of 2.1% in its 1st year and negative 7.2% in the current year. In addition to this, PTI increased the utility prices significantly; gas by 140% and electricity by more than 70%, whereas, circular went up from Rs. 1032 Billion in May-2018 to 2026 Billion in Mar-2020. It was claimed that “The Naya Pakistan” is now corruption free, however, tax collection is stagnant at the same level since June-2018 which swelled double in 5 years of PML(N) tenure. In just two years the incumbent government borrowed more than 45% of total debt taken in the last 70 years of Pakistan history.
Poverty
The PML-N government managed in its 2013-18 tenure to reduce the number of people living below the poverty line by 6 percent but this national achievement has eroded in the last two years and the poverty number has already gone back to square one. Sadly, over 10 million families have been pushed into abject poverty with even larger numbers facing food insecurity.
Social Safety Net Program
In the Islamic Republic, the state has to look after its people who are most vulnerable and deserve financial assistance. It is with this background that the scribe proposed in May 2008 to the PPP-PML-N coalition cabinet to launch in the forthcoming budget of an income support program (later named BISP) with Rs. 34 billion which was duly announced in the federal budget for FY09. BISP allocations increased to Rs. 40 billion during PPP’s five-year tenure to FY13. The PML-N made a quantum jump of 270 percent in its support expenditure to Rs. 148 billion (BISP 124/ youth 20/ Baitulmal 4) during its tenure to FY18. Further increase in the last two years by the PTI government in social safety net support program, regardless of a rebranded name ‘Ehsas’, is a step in a positive direction.
In its 2013-18 tenure, the PML-N government managed to reduce the number of people living below the poverty line by 6 percent but this national achievement has eroded in the last two years
Petroleum Products Prices:
The PTI leaders used to talk about the ‘petroleum levy’ as an oppressive tax on petroleum products when they were in opposition. Taking a U-turn, it seems that one of PTI’s main items is to mobilize revenue through this levy which increased from Rs. 179 billion to Rs. 260 billion in two years and which has now been budgeted to yield an unprecedented amount of Rs. 450 billion in FY21, (that is 251 percent higher than PMLN’s FY18). This hike in levy has resulted in a huge increase in prices of petroleum products which has added to the misery of people who can’t afford even the increase in prices of essential commodities and medicines. amount of Rs. 450 billion in FY21, (that is 251 percent higher than PMLN’s FY18). This hike in levy has resulted in a huge increase in prices of petroleum products which has added to the misery of people who can’t afford even the increase in prices of essential commodities and medicines.
FBR Taxes Revenue
PM Imran made a public pledge to increase FBR tax revenue to Rs. 8,000 billion within one year. Against PMLN’s revenue collection increased by 97 percent to Rs. 3,842 billion in FY18, PTI’s collection for FY19 was Rs. 3,829 billion which showed negative growth after 23 years. For FY20, the official taxes collection number of Rs. 3,998 billion has been announced, but if one takes into account refunds of Rs. 101 billion made through supplementary grants coupled with outstanding SRO1125 refunds of Rs. 71 billion, the true tax revenue for FY20 is Rs. 3,827 billion; again a negative taxes collection figure. This shows the pathetic performance when viewed with huge new taxation of around Rs. 900 billion by PTI in the last two years.
Public Debt
The PTI pledged to the nation to reduce the public debt by Rs. 10 trillion, which stood at Rs. 24.2 trillion at the close of FY18. In reality, the debt in the two years of the PTI government has increased by 41 percent to Rs. 34.5 trillion, an alarming rate of increase that is far speedier than PML-N without investing in any mega visible project like that of PML-N’s power generation, motorways, and highways, communication infrastructure ones. Public debt projections shared confidentially with IFIs by the government indicate that the public debt figure would increase to Rs. 47 trillion by FY23. Public debt and liabilities figures also reveal an increase of 43% from Rs. 30 trillion to Rs. 43 trillion in the last two years.
Fiscal Deficit
In its first two fiscal years, the PTI government has increased the budget deficit from Rs. 2,260 billion to Rs. 3,376 billion or from 6.6 percent to 8.1 percent of the GDP. The main reasons for such escalation are its failure to enhance taxes revenue collection and its inability to control the current account expenditure which rose by 35
percent from Rs 4,704 billion (FY18) to Rs. 6,372 billion (FY20). If the un-spent federal PSDP of Rs. 234 billion and un-utilized Covid-19 allocation of Rs. 540 billion during FY20 are taken into account, then the real fiscal deficit is Rs. 4,150 billion or 9.95 percent as against the reported number of Rs3,376 billion or 8.1 percent of GDP.
Foreign Remittances (FR)
FR had increased by 43 percent to $19.9 billion in five years to FY18. These have further gone up by 16 percent to $23.1 billion in the last two years. One hopes that this upward trend continues as FR is a great contributor towards an external balance of payments. Covid-19 pushed economic difficulties in most of the countries are resulting in job termination of our workforce abroad.
Current Account Deficit (CAD)
CAD was in the range of $4 billion-plus annually in the FYrs14-16 and shot up to $12 billion in FY17 and $19 billion in FY18. Later two years were extraordinary as forex payments were to be made for energy projects to end 18 hours a day load-shedding, CPEC, and other infrastructure development-related investments in addition to security-related urgent payments. CAD was to come down substantially in FY19 and onwards as major one-off payments had been completed by FY18. But the way imports have been curtailed mercilessly in the last two years by imposing sky-high customs duty to improve the CAD isn’t very prudent as industrial activity has halted completely, resulting in negative -10 percent growth in large scale manufacturing (LSM) with millions of jobs redundancies and severe negative impact on the overall economy.
Rupee Devaluation
The PTI government chose to follow pseudo intellectuals’ bookish theory, which was propagating a slide of rupee to $/Rs 127 to boost exports, and allowed self-slide devaluation but could not manage to handle it later. Despite that rupee-dollar parity has fallen to 168 in two years, the exports for both FY19 and FY20 have shown a decline. While PML-N had insulated 92 percent of the economy (exports being 8 percent) from the damage of devaluation during its tenure and got the growth of 12.7 percent in exports for FY18 with targeted support, the PTI has ruined the entire economy by blindly sliding the rupee which resulted in massive inflation, closure of businesses, industrial stagnation, negative GDP growth with increased poverty and unemployment. The devaluation alone has caused a national loss of Rs. 4,840 billion (equal to $29 billion) through an increase in public debt in the last two years.
Policy (Interest) Rate
With improvement in macroeconomic indicators, better sovereign ratings, and built up of forex reserves with the stable rupee, the PMLN managed to bring down in its tenure SBP policy rate to 6.25 percent, export refinances (ERF) and long term finance facility (LTFF) to 3 percent which was lowest in decades; with core inflation at 4 percent the real interest rate was positive at 2.25 percent. In contrast to PMLN’s performance, PTI raised the interest rate to 13.25 percent due to decades of high inflation triggered by massive rupee devaluation and poor economic performance. The government had been raising dollar deposits in the last two years by issuing short-term sovereign papers with a 13.25 percent interest rate known as ‘Hot Money.’ This failed aspect of monetary policy alone doubled the national annual debt servicing cost from Rs. 1,500 billion to Rs. 3,000 billion and impaired the industrial activity in the country with negative 7 percent LSM growth. Following the Covid-19 pandemic, the unbearable policy rate was reluctantly brought down to 7 percent in phases on this account and has naturally led to a massive withdrawal of hot-money dollars deposits.
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