Pakistan is passing through toughest economic conditions of its history. Yet these conditions are not irreparable or irreversible. There is a light of hope on the other side of this darkest long tunnel. What we need is to be focused and to let the storm of repayments due this year be settled. These repayments are against aggressive loans taken by previous regimes to check inflation, avoiding devaluation, controlling interest rates and to fuel non-developmental expenditures rather increasing Exportable Business Activities instead of import based economic growth. Present Government is under severe criticism on bringing inflation to double digit, devaluation of Pak-Rupee and increasing discount rates which according to some experts is result of avoiding IMF to defend PTI’s pre-election claim that going IMF is a suicidal. Is it fair to verdict against a newly established government on its Economic policies where evidently, the biggest indicator of control over Economy i.e. Current Account Deficit decreased significantly along with Trade Deficit? Then why PTI is being blamed for the financial crisis they inherited? Boasting of not going to IMF, overestimation of foreign remittance, no massive recovery from accountability, inability to increase direct taxation and finally non fulfilment of 100 days planned targets, formulated this public opinion.
According to available statistics, inflation has recorded highest of last 5 years. It reaches to almost 9.4% in the month of March 2019. GDP growth rate slowed down and according to Asian Development Bank (ADB) Forecast it will end up to around 3.9% in Financial Year 2019. GDP was around 5.7% when PMLN completed its 5 years. Massive devaluation took place in Current Financial Year where Rupee lost its value against dollar by almost 26 Rupees. Another factor that has jolt down the business activates; the interest rate phenomenon. State Bank of Pakistan has increased Discount Rate almost a double of last regime due to increase in inflation. This has increased financial cost of industries having credit lines with Banks to meet their working capital exigencies. But this is not end of the story.
Inflation has recorded highest in the last 5 years. It reaches to almost 9.4% in the month of March 2019. GDP growth rate slowed down and according to Asian Development Bank (ADB) forecast, it will end up to around 3.9% in Financial Year 2019. GDP was around 5.7% when PML-N completed its 5 years. Massive devaluation took place in Current Financial Year where the Rupee lost its value against dollar by almost 26 Rupees
In PMLN era almost $35 Billion Dollars were taken as external loans from different ways. Why PMLN needed for such huge loans? They tried to control Dollar vs PKR parity artificially which actually was the outcome of their inability to bring down Trade Deficit that translated into huge Current Account Deficit, accelerated more than GDP growth. Imports were increased multiple times to that of Exports and Pakistan had become a country lucrative for imports due to artificially controlled Pak Rupee. On the contrary Exportable item could not get their customers being expensive owing to same reason. Another blunder of the regime was to encourage import of those consumable items which otherwise are also manufactured in Pakistan. Therefore local industries that can be checked through quality control and could have resulted in producing quality products which in return could have saved foreign exchange, lost their business grounds gradually. Cheaper and superior quality consumable items and lower Dollar rate translated into decrease in inflation numbers resulted in lower discount rates contrary to present situation. Non Developmental Expenditures, just for cosmetic surgery of Economy to get votes in shorter run, like Metro Train etc, had consumed billions of Dollar which otherwise could have spent over projects from where revenues may be generated for repayment against these loans in longer run.
Current Account Deficit (CAD) and Trade Deficit figures under present regime show that government has controlled these two fundamentals of Economic System. The current account deficit plunges by 59% in February 2019 compared to January in this financial year. PTI inherited a massive CAD which stood at $18.9 billion in FY18 which has been the cause of dwindling reserves. However, since the beginning of this year, there has been persistent decrease in CAD as it fell by 47pc month-on-month in January 2019.During 8 months of Financial Year 2019, CAD fell to $8.844 billion, down 22.5pc, from $11.421bn in same period last year. Asian Development Bank also predicted that CAD is expected to ease in FY2019 equivalent of 5.0% of GDP which will narrow further to 3.0% in FY2020 with easing macroeconomic pressures on the external accounts. According to this theory when CAD will narrow to some particular level it will bring economic activities of Pakistan near to real values according to the law of demand and supply. Moreover bringing down imports will control foreign exchange loss. However behind getting these results PTI Finance Ministry is ruining lives of general public and small medium enterprises by injecting inflation that resulted in increasing Discount Rates and massive devaluation of Pak Rupee which actually needs to be fixed through other measures.
Increase in Direct taxation is a key to control fiscal deficit rather increasing General sales Tax rate and spreading it out to more products whether it is consumable items, medicine or Utility Bills. This will control inflatory pressure on general public without effecting Tax Collection. Government should focus on improving quality control units so that people may buy local products instead of those manufactured by Multi-National Companies (MNCs) in Pakistan to avoid any Foreign Exchange Leakage and to promote local industry. MNCs are a good source of Foreign Investments but in longer run if they don’t shift technology to that country it results in local industry to fail and through heavy payment of dividends, foreign exchange outflow becomes a regular feature through these MNCs. Promoting agriculture is another way to increase exports rather than heavily depending on Textile sector only. It will also reduce input cost and import of cotton for Textile sector resulting a very positive impact on Balance of Payments. For increasing agriculture Pakistan needs uninterrupted water flow which can be possible by introducing smaller dams to save Rain flows in monsoon season which can also helpful for producing cheaper electricity. Apart from Dams, Iran Pakistan Gas pipeline can also bring down the utility bills crisis of industries and General Public at large. These measures can control inflation which will ultimately result in lowering discount rates. By promoting Made in Pakistan Products Foreign Exchange will be saved which will also lower the pressure on imports which other way round results in getting more loans to bridge trade deficit.
(The writer is an Economist, Columnist and a Chartered Banker UK. He can be found at twitter: syedaliimran75)