Pakistan's Economic downfall
ISLAMABAD - The news is not very good for Pakistan which has been facing economic turmoil since last many years due to rampant corruption and ill-conceived economic policies pursued by the successive governments. Almost for last ten years, all the economic fundamentals are going against us.
The exports are falling, the unchecked imports are rising, trade deficit is widening and current account deficit touching alarming levels, unemployment has reached worrying heights and rich-poor gap is posing a nightmarish scenario, further compounded by massive corruption at all levels.
Remittances are down as compared to the corresponding levels and trends in the previous years due to falling number of workers, proceeding abroad for employment due to ill-conceived policies.
The average daily earnings of employed population is below $1.90 and purchasing power parity is 8.6%. The World Bank in its recent report “Pakistan Development Update”, stressed Islamabad to have an “able tax administration” to broaden extremely narrow tax base. The report also stressed need to devalue the rupee against the US dollar, saying an overvalued currency severely damaged exports.
The World Bank said that Pakistan’s reliance on short-term foreign commercial loans has significantly increased and the government obtained $5.8 billion short-term loans in just two years. “These facilities of relatively short horizons can create repayment issues in the future,” warned the Washington-based lender.
In its updated flagship economic publication Asian Development Outlook (ADO) launched recently, it said that the growth projections for next year were retained for all economies of South Asia except Pakistan, which is higher, and Sri Lanka, which is lower. “As such-and assuming further improvement in energy supply and security, and likely recovery in cotton and other agriculture, the growth forecast for FY 2018 is revised up to 5.8%”, the report added.
The report further said that a major impetus to growth in FY 2017 and beyond would be the implementation of $52 billion CPEC program of infrastructure spending on roads, railways, pipelines and electric power in an economic corridor project linking Pakistan with the People’s Republic of China (PRC), which was announced in April 2015. Fast-tracking would enable several energy projects to come on stream in FY 2018, report added.
The government significantly strengthened macroeconomic fundamentals and advanced a comprehensive program of structural reform under a 3-year program with the IMF that ended in September 2016. Inflation has been squashed to the low single digits, foreign reserves rebuilt, and the budget deficit markedly reduced. Tax reform was launched to improve revenue performance, and substantial progress achieved toward restructuring the power sector.
Key challenges remain, however, regarding governance and security issues, reviving agriculture and improving its productivity, increasing exports and attracting investment, strengthening public enterprises, and improving the business and regulatory environment.
The government however claims that budget for FY 2017 projects further reduction in the deficit to 3.8% of GDP achieved by adopting new revenue measures and streamlining current expenditure.
Tax revenues are projected to increase by half a percentage point, raising the ratio of tax to GDP to 12.8% by eliminating more tax concessions and exemptions, expanding the withholding system as part of administrative reform to widen the tax base, and raising some excise taxes and customs duties, the report added. Inflation is now expected to average 4.7% in FY 2017.The upward revision takes into account expected oil price rises and stronger domestic demand in an increasingly supply constrained economy.
It is tempered by the prospect of a broad agricultural recovery and only modestly higher global food prices. The July 2016 Monetary Policy Statement covering the first 2 months of FY2017 kept policy rates unchanged as the central bank continues its cautious forward-looking approach, expecting to hold inflation within the range of 4.5%-5.5%.
The report observes that the current account deficit was expected to widen in FY2017 to about $5 billion, or 1.6 % of GDP, which is higher than forecast in March. The revision reflects a somewhat greater increase in global oil prices than expected and continued expansion in other imports stemming from faster economic growth.
On the positive side, there is an increased activity in FDI and renewed interest of the foreign multi-national companies from Europe, Russia and USA to put their footprints in the country, mainly due to confidence in our economic agenda and of course CPEC. Pakistan and European Investment Bank last week agreed on co-operation in the Energy conservation and Energy efficiency sectors.
A Russian consortium of investors were last week in Pakistan and signed an agreement to put up a oil refinery having a capacity to 200,000 barrels of oil per day. According to an OECD report regarding Pakistan’s overall ratings with regard to Finance and Banking and Taxation, it is largely compliant with the international standard.
Pakistan’s legal framework ensures that ownership information, accounting and banking information is available and can be obtained in line with the standard. The main findings of the report relate to a room for improvement in supervision and enforcement of obligations ensuring availability of ownership and accounting information.
Pakistan is also recommended to improve its response times to requests for exchange of information. The report further notes a potential ambiguity concerning rules regulating confidentiality of information exchanged under Pakistan’s agreements. Since the cut-off date of the review, Pakistan has nevertheless taken steps aiming to address this issue.
One of the major pillars of our economy are the worker’s remittances. Since last three years we are witnessing a downward trend in the number of workers proceeding abroad for employment which has seriously affected our remittances from abroad. It is a natural consequence. But the most worrying part of this alarming situation is that this debacle is due to ill-conceived policies and sheer negligence on the part of concerned ministry.
No effort has been made to explore new markets for our trained, skilled and hardworking manpower and no action has been taken to tap traditional host countries. Qatar, a promising market for our work force only employed 7000 workers from Pakistan and Kuwait still hasn’t lifted ban on recruitment from Pakistan-a setback on diplomatic front.
Pakistan still remains in grip of massive corruption at all levels. Public sector is the most affected and culture of commissions and kick-backs is flourishing in spite of commendable actions of NAB.
Government must act with an iron hand and come down heavily on corrupt elements. Our system look completely out-dated and our actions seem thoroughly devoid of morality.
This mentality has to change. There is a hope that if the rules are strictly enforced for everyone and government gets tough with violators things might change for the better.
Mahrukh A Mughal — The author, a freelance columnist, is based in Lahore.