The government has released a paper containing its two-year economic performance which merits a realistic fact-based comparative analysis in order to see the true picture. The practical way to do so is to examine the key economic indicators which PTI government inherited from PMLN in 2018 and study where these stand at the close of two years ending FY20.
GDP: The GDP growth is a key indicator as it reflects the overall economic activity of a country which provides jobs opportunities, reduces poverty, increases per capita income. It declined from 5.8% to 1.9% in the first year and further slumped to negative-0.4% (after 68 years) at the end of the second year. Global financial institutions have stated that the negative growth of 0.4% for FY20 has been understated by the government and it would finally end up around negative-2% 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% for first year to 1.9%. 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% during FYrs14-18 to $1,652 has unfortunately reduced by 16% to $1,388 in two years to FY20.
Inflation: The most relevant economic indicators from common man’s viewpoint are commodities’ prices related as these indicate the inflation (mehngaee) on ground; in two years to FY20, consumer price index (CPI) has risen from 4% to 10.5%, wholesale price index (WPI) from 4.7% to 11% and sensitive price index (SPI) from 2.4 to 14% which are reflected in almost doubling of the prices of sugar, wheat flour, vegetables, pulses, medicines, natural gas and electricity. Food inflation which was less than 2% two years ago has risen to 15% which has caused massive unrest of masses as multi millions are now unable to even afford two square meals a day.
Unemployment: The number of jobless people has increased in the last two years by at least over 50% and the unemployment rate has risen to over 10% by FY20. Contrary to PTI’s promise, the government has recently terminated jobs of nearly 10,000 employees of Pakistan Steel Mills(PSM). PTI has forgotten that PMLN tried to reform and restructure PSM and PIA in 2016 without any plan to lay-off even a single employee of both organisations but PTI played negative politics by staging rallies in Karachi against such plan and sponsored strikes in Karachi which ended up with few deaths of innocent people. This high unemployment rate coupled with unaffordable prices of daily use commodities has caused lot of frustration in the suffering families.
Poverty: PMLN managed in its 2013-18 tenure to reduce the number of people living below the poverty line by 6% but this national achievement has eroded in 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 an even larger number who are facing food insecurity.
Social Safety Net Program: In an Islamic Republic it is the duty of the State 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-PMLN coalition cabinet for 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 got increased to Rs 40 billion during PPP five years tenure to FY13. PMLN made a quantum jump of 270% in this noble-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 PTI government in social safety net support program, regardless of the rebranded name of ‘Ehsas’, is in a positive direction.
Petroleum Products Prices: PTI leaders used to make a big hue and cry with naming ‘petroleum levy’ as an oppressive tax on petroleum products. Taking a U-turn, it seems that the PTI’s one of main items to mobilise revenue is through this levy which increased from Rs 179 billion to Rs 260 billion in two years 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 misery of people who can’t afford even the increase in prices of essential commodities and medicines.
FBR Taxes Revenue: PM Imran Niazi made a public pledge to increase FBR Tax Revenue to Rs 8,000 billion within one year. Against PMLN’s revenue collection increase by 97% to Rs 3,842 billion in FY18, PTI’s collection for FY19 was Rs 3,829 billion which showed negative growth after 23 years and for FY20 the official taxes collection number of Rs 3,998 billion has been announced but if one takes into account the refunds of Rs 101 billion made through supplementary grant coupled with outstanding SRO1125 refunds of Rs 71 billion, the true taxes revenue for FY20 is Rs 3,827 billion, again a negative taxes collection figure. This is the very pathetic performance when viewed with huge new taxation of around Rs 900 billion by PTI in the last two years.
Public Debt: 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 PTI government has increased by 41% to Rs.34.5 trillion, an alarming rate of increase that is far speedier than PMLN without investing in any mega visible project like that of PMLN’s power generation, motorways & 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 figure 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, PTI govt has increased budget deficit from Rs 2,260 billion to Rs 3,376 billion or from 6.6% to 8.1% of GDP, 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% from Rs 4,704 billion (FY18) to Rs 6,372 billion (FY20). If the un-spent federal PSDP of Rs 234 billion and un-utilised 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% as against the reported number of Rs 3,376 billion or 8.1% of GDP.
Foreign Remittances: FR had increased by 43% to $ 19.9 billion in five years to FY18. These have further gone up by 16% to $ 23.1 billion in the last two years. One hopes that this upward trend continues as FR are a great contributor towards the external balance of payments. COVID-19-pushed economic difficulties in most of the countries are resulting in jobs termination of our workforce abroad.
Current Account Deficit: CAD was in the range of $4B 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 the industrial activity has halted completely, resulting in negative-10% growth in large scale manufacturing (LSM) with millions of jobs redundancies and severe negative impact on the overall economy.
Pak Rupee Devaluation: PTI government chose to follow pseudo-intellectuals’ bookish theory, who were propagating 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 PMLN 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% in exports for FY18 with targeted support, 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 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 the improvement in macroeconomic indicators, better sovereign ratings and built up of forex reserves with the stable rupee, PMLN managed to bring down in its tenure SBP policy rate to 6.25%, export refinance (ERF) and long term finance facility (LTFF) to 3% which were lowest in decades; with core inflation, at 4% the real interest rate was positive at 2.25%. In contrast to PMLN’s performance, PTI raised the interest rate to 13.25% due to decades high inflation triggered by massive rupee devaluation and poor economic performance. The government had been raising dollars deposits in the last two years by issuing short term sovereign paper with 13.25% 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 a negative 7% LSM growth. Following Covid-19 pandemic, the unbearable policy rate was reluctantly brought down to 7% in phases on this account and has naturally led to a massive withdrawal of hot-money dollars deposits.
Power Circular Debt: PTI always criticised the accumulation of power circular debt. It was Rs 503 billion at the close of FY13 which increased to Rs 1100 billion by FY18. PTI Energy Minister announced its reduction to Rs 100 billion by FY20 but in reality the same has jacked up with great speed to Rs 2,200 billion. Energy bills collection which increased from 84% to 93% by FY18 has deteriorated to 81% in the last two years. Likewise, transmission and distribution losses, which had improved from 22% to 18% by FY18, have increased to 19% by FY20.
Covid-19 Pandemic: PTI government’s intervention to reduce severe adverse effects of Covid-19 pandemic on people and economy has been ineffective. An inadequate package of Rs 1240 billion was announced for this purpose which also included regular allocations of Rs 570 billion (Rs 280 billion wheat procurement, Rs 100 billion exporters’ overdue refunds and Rs 190 billion Ehsas program) to inflate the true support amount; of the remaining balance of Rs 670 billion, there was still an un-utilised amount of Rs 540 billion at the close of FY20 which appears to have been done on purpose to reduce fiscal deficit of the said fiscal year. Regrettably, there is obvious mishandling of the pandemic as it began and surged in Pakistan with the immature and unwise permission by the government which allowed entry of likely pandemic-carriers without required medical handling at the borders.
Globally recognised economic performance of Pakistan by FY17 was unfortunately hindered by sponsored political instability in the country in order to launch PTI government which has proved in the last two years to be one of the most incompetent, visionless, incompetent and driven by sugar-wheat-medicines etc mafias who collectively are responsible for the mismanagement of the economy. With negative GDP growth, stagnant taxes collection, rising public debt, high fiscal deficit, double digits inflation and peaking jobless-cum-poverty numbers, the government has turned out to be a nightmare for the overwhelming majority population who cannot afford anymore essential commodities of daily use and two square meals a day.
(The author, a UK Fellow Chartered Accountant, is former Finance Minister of Pakistan and former Leader of Opposition in the Senate of Pakistan)