The government has released a paper containing details of its two-year economic performance. This merits a fact-based comparative analysis in order 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)
The GDP growth is a key indicator as it reflects overall economic activity in a country which 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 negative-0.4 percent (after 68 years) at the end of 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 first year to 1.9 percent. The size of GDP has shrunk from $315 billion to $264 billion in two years, resulting in 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.
The most relevant economic indicators from a common man’s viewpoint are commodities’ prices related as these indicate inflation on the ground; in two years to FY20, consumer price index (CPI) has risen from 4 percent to 10.5 percent, wholesale price index (WPI) from 4.7 percent to 11 percent and sensitive price index (SPI) from 2.4 to 14 percent 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 two percent two years ago has risen to 15 percent which has caused massive unrest of masses as millions are unable to even afford two meals a day.
PTI government’s intervention to reduce severe adverse effects of Covid-19 pandemic on people and economy has been ineffective
The number of jobless people has risen in the last two years by at least over 50 percent and the unemployment rate has risen to over 10 percent by FY20. Contrary to PTI’s promise, the government has recently terminated jobs of nearly 10,000 employees of Pakistan Steel Mills (PSM). The PTI has forgotten that PML-N 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 a plan and sponsored strikes in Karachi which ended in a few deaths of innocent people. This high unemployment rate coupled with unaffordable prices of daily use commodities has caused lot of frustration in the public.
The PML-N managed in its 2013-18 tenure to reduce the number of people living below poverty line by 6 percent 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 even larger number facing food insecurity.
Social Safety Net Program
In an Islamic Republic, it is 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 to launch in the forthcoming budget of an income support program (later named BISP) with Rs34 billion which was duly announced in the federal budget for FY09. BISP allocations increased to Rs40 billion during PPP’s five-year tenure to FY13. The PML-N made a quantum jump of 270 percent in its support expenditure to Rs148 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 a rebranded name ‘Ehsas’, is a step in a positive direction.
The PML-N managed in its 2013-18 tenure to reduce the number of people living below 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 ‘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 mobilise revenue through this levy which increased from Rs179 billion to Rs260 billion in two years and which has now been budgeted to yield an unprecedented amount of Rs450 billion in FY21, (that is 251 percent higher than PMLN’s FY18). This hike in levy has resulted in 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 made a public pledge to increase FBR tax revenue to Rs8,000 billion within one year. Against PMLN’s revenue collection increase by 97 percent to Rs3,842 billion in FY18, PTI’s collection for FY19 was Rs3,829 billion which showed negative growth after 23 years. For FY20, the official taxes collection number of Rs3,998 billion has been announced, but if one takes into account refunds of Rs101 billion made through supplementary grants coupled with outstanding SRO1125 refunds of Rs71 billion, the true tax revenue for FY20 is Rs3,827 billion, again a negative taxes collection figure. This shows pathetic performance when viewed with huge new taxation of around Rs900 billion by PTI in last two years.
The PTI pledged to the nation to reduce the public debt by Rs10 trillion, which stood at Rs24.2 trillion at close of FY18. In reality the debt in the two years of PTI government has increased by 41 percent to Rs34.5 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 public debt figure would increase to Rs47 trillion by FY23. Public debt and liabilities figure also reveal an increase of 43% from Rs30 trillion to Rs43 trillion in last two years.
In its first two fiscal years, PTI government has increased budget deficit from Rs2,260 billion to Rs3,376 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 Rs6,372 billion (FY20). If the un-spent federal PSDP of Rs234 billion and un-utilised Covid-19 allocation of Rs540 billion during FY20 are taken into account, then the real fiscal deficit is Rs 4,150 billion or 9.95 percent as against 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 last two years. One hopes that this upward trend continues as FR are great contributor towards 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)
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 overall economy.
The 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 decline. While PML-N had insulated 92 percent of the economy (exports being 8 percent) from damage of devaluation during its tenure and got 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 national loss of Rs4,840 billion (equal to $ 29 billion) through increase in public debt in last two years.
Policy (Interest) Rate
With improvement in macroeconomic indicators, better sovereign ratings and built up of forex reserves with stable rupee, the PMLN managed to bring down in its tenure SBP policy rate to 6.25 percent, export refinance (ERF) and long term finance facility (LTFF) to 3 percent which were 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 interest rate to 13.25 percent due to decades high inflation triggered by massive rupee devaluation and poor economic performance. The government had been raising dollars deposits in last two years by issuing short term sovereign paper with 13.25 percent interest rate known as ‘Hot Money.’ This failed aspect of monetary policy alone doubled the national annual debt servicing cost from Rs1,500 billion to Rs3,000 billion and impaired the industrial activity in the country with negative 7 percent LSM growth. Following Covid-19 pandemic, the unbearable policy rate was reluctantly brought down to 7 percent in phases on this account and has naturally led to massive withdrawal of hot-money dollars deposits.
Power Circular Debt
The PTI always criticised the accumulation of power circular debt. It was Rs503 billion at close of FY13 which increased to Rs1,100 billion by FY18. PTI energy minister announced its reduction to Rs100 billion by FY20 but in reality it was jacked up with great speed to Rs2,200 billion. Energy bills collection which increased from 84 percent to 93 percent by FY18 has deteriorated to 81 percent in last two years. Likewise, transmission and distribution losses, which had improved from 22 percent to 18 percent by FY18, have increased to 19 percent by FY20.
PTI government’s intervention to reduce severe adverse effects of Covid-19 pandemic on people and economy has been ineffective. An inadequate package of Rs1,240 billion was announced for this purpose, which also included regular allocations of Rs570 billion (Rs280 billion wheat procurement, Rs100 billion exporters’ overdue refunds and Rs190 billion Ehsas program) to inflate the true support amount; of the remaining balance of Rs670 billion, there was still an un-utilised amount of Rs540 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 the 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 mafias who collectively are responsible for 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 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. He can be contacted on Twitter @MIshaqDar50