The first economic survey post-IMF bailout package paints a mixed picture. Not much has changed in terms of economic targets, as most of them have been missed. The good news is that the economy has a growth rate of 5.28 percent — its highest in almost a decade — as compared to the expected 5.7 percent. Yet other economic indicators portray a dismal outlook. Inflation is up; forex reserves — although relatively stable — have declined to $21 billion, while remittances and foreign direct investment (FDI) stand at $15.6 billion and $1.17 billion, respectively.
All this means there are not many surprises to be had. The government has a habit of setting unachievable targets prompting most economic experts to rely on independent evaluations by international agencies. Moreover, the mincing of numbers to manufacture healthy economic outlook has continued this year as well. Last year, the reported 4.8 percent GDP growth rate was revised down to 4.5 percent after necessary adjustments. Similarly, the current survey doesn’t mention a number of tax exemptions granted in the outgoing fiscal year.
Current growth has been backed by mainly a spurt in services, and a partial rebound in culture courtesy of the cotton crop. Minus the services sector, the rest of the economy grew an estimated 1.9pc only. Exports have remained under stress as the country’s current account deficit crossed the $8-billion-mark due to the government’s rigid financial policies. Furthermore, despite the positive reviews from credit rating agencies and financial journals, investment rates have remained subdued.
But the main problem in the current survey has been the rise in tax exemptions in various sectors given under Statutory Regulatory Orders (SROs). The exemptions have risen to Rs415.8 billion following two successive years of reductions. The free trade agreements, mainly with China, have also added to the total cost of these. The government had started a three-year programme to phase out exemptions under SROs in the fiscal year 2013-14 as part of IMF directives. The government, nevertheless, followed the practice for two years before relaxing exemptions once again this year. If the government had eliminated SROs the reduction would have been reflected in the FY17 economic survey. Moreover, the absence of records of certain tax exemptions — including capital gains exemptions worth Rs1.7b billion and independent power projects (IPPs) worth approximately Rs50 billion — add further ambiguity to the economic report.
Now with FY18 being an election year, an expected government-spending spree threatens additional complications. The centre must realise that it needs to address underlying problems including current account deficits and stagnant FDI in order to address long-term challenges. The international economic agencies have warned Pakistan against financial splurging for short-terms gains instead of investing in long-term projects. While a relatively significant portion of the Public Sector Development Programme (PSDP) is allocated to the China-Pakistan Economic Corridor (CPEC)-related early harvest projects, which are growth-enhancing for the most part, the bulk of development spending is on projects that have either tenuous or too marginal and diffused a positive effect on economic growth. *