Unanswered Questions

By Syed Sadaqat Ali Shah

Much has been claimed by the government about economic renaissance and accomplishments of set goals- low inflation, multiplying foreign reserves, shrinking trade deficit, expansion in credit to private sector, better law and order situation and power availability to industrial sector respectively. The government in turn for its performance and prudence it employed in reviving economic growth received commendations from International Monetary Fund and the World Bank. IMF and World Bank in their reports forecasted optimistic growth prospects for Pakistan. The IMF after release of World Economic Outlook report has included Pakistan in the emerging market category.

The outlook however is to the contrary.

The queries surrounding how government accomplished the set goals are until now unanswered or, if answered, are not satisfactorily answered. Some circles define current state of the economy as window dressing whilst some define the positive trend as temporary and short-lived with worse economic consequences in the long run.

The plunge in oil price in international market has dual impact; for country importing oil to meet domestic demand and to oil exporting country. The downward trend in oil prices has positive consequences for countries importing this demanded commodity. Countries importing oil experience lower import bills and less pressure on import side, thus saving enormous money which is invested in developmental projects and in social welfare. The oil exporters however suffer under these times of panic in terms experiencing pressure on current account and foreign reserves.

Pakistan with oil prices plummeting experienced easiness on import side of the total trade. The import bill as a result lowered to never-seen-before level. The consequences of falling oil prices were felt domestically with lower inflation rate and low import bill. It is of utmost importance to mention here that import bill other than oil bill has swelled since 2013. Exports which are deemed as to off-set impacts arising as result of higher imports have too deteriorated since 2013. Questions therefore emerge as whether lower inflation and improved trade deficit are accomplishments of government or that lower inflation and shrunk import bill are outcome of changes in international market.

Total liquid foreign reserves of USD 20,718 million, with USD 15,859 million held by SBP and USD 4858 million held by banks, seem as glorious picture of foreign reserves and stability in exchange rate and national economy.  Translating this achievement in to trade displays contrasting picture. The trade gap has widened to $ 13.7 billion, with exports $12.1 billion and imports $25.7 billion. It is the first time in country’s history that through comprehensive and transparent economic policies and reforms undertaken by incumbent government the imports as compared to exports have doubled. Question therefore is not about ballooning foreign reserves, the question is how government through deep-rooted and comprehensive economic policies and reforms achieved all time higher foreign reserves, with falling exports, increasing imports and negligible FDI ($754 million)?

Since the installation of PML-N government in 2013 power outage undoubtedly has decreased to considerable level and that power availability has been ensured to industrial sector as promised. Power availability to industrial sector has boosted domestic production and employment opportunities for youth seeking jobs in the country. Questions surround the claims made by the government when it comes to cost per unit of electricity in Pakistan which adversely affects export competitiveness in international market. The cost of electricity in Pakistan is 86 percent higher than Sri Lankan and more than 45 percent higher than India and Bangladesh. Simultaneously the per unit cost of electricity in Pakistan as compared to India (9 cents), China (8.5 cents) and Bangladesh (7.3 cents) is 14 cents. The cost erodes competitiveness of domestically produced goods in international market. Does merely availability of power to industrial sector solve problems or does availability of cheap electricity solve dilemmas?

Bank credit to private sector has declined due to dominance of government excessive borrowing from banking sector.  Despite banks posting fat profits and reflecting growth in bottom line of their statement of financial position credit-to-GDP ratio is lowest as compared to other selected developing countries. The services sector which contributes most to GDP receives less than 20 percent of total loan basket whilst on other hand manufacturing sector which contributes one-fifth to GDP receives highest shares in overall credit allocation. Government reliance on domestic borrowing, to restrain fiscal deficit, has marginalized credit for private sector. In fact commercial banks’ credit to private sector fell to 13 percent in 2014-2015 as compared to 27 percent in 2007-2008. The solution to problems is not merely to enhance credit to private sector, the solution is to allocate credit evenly, not tilted, and at least cost to spur economic growth. Government’s least reliance on borrowing from commercial banks leaves a slew of credit for private sector.

Privatization is seen as solution to economic woes facing Pakistan. The incumbent government’s move to privatize state owned enterprises has its own unique impacts. Privatization is encouraged to improve service quality, efficiency and stimulate competitiveness of enterprises so privatized. In case of Pakistan the aim to privatize state owned enterprises is contrary- to save billions of rupees dole out to PSE in the form of bailouts. The process to privatize sectors has pre-requisites- transparency, favorable environment with strong investor confidence, proper-selection of PSEs and an independent and empowered restructuring institution (RI). The absence of investors’ interest and lack of transparency in privatization process has turned situation in doubts and wonders. Selling state owned enterprises, to save billions of rupees, to few magnates and business tycoons is not privatization, it is oligarchy.  Such scenarios give birth to questions that need to be answered. Privatizing national strategic assets- Pakistan Steel Mill, OGDCL, PSO and PIA, will improve service quality, efficiency and competitiveness of these national assets? How much successful were previous deals- PTCL, MCB?

The government’s step to curb terrorism in the country has contributed to improving business climate in country.  Improving law and order situation in Karachi, Balochistan and the rest of country is adding to economic revival and restoring investors’ confidence. Question surrounding the accomplishments so far made is about strategic shift in act of terrorism, by targeting schools and colleges; the attack on APS Peshawar and then on Bacha Khan University Charsadda. The success of government to curb this sort of terrorism is yet to be achieved.

The vitality of political stability cannot be ignored. Politically stable governments attracts foreign investment, have stable economies- stable inflation rate, stable exchange rate, consistent macroeconomic policies, which add to economic growth. Pakistan since inception in 1947 has experienced political instability. According to Worldwide Governance Indicators, Pakistan is in the first percentile; 99 percent of countries are better than Pakistan in terms of political stability and law and order. The fragmented political system has worsened circumstances rather than improving economic fronts and has led to political instability with its widespread negative impacts on national economy. Giving this rationale shall we expect prosperous Pakistan in the presence of fragmented political system, where every individual has his own political party?

The questions about; move against terrorists without any discrimination, transparency in CPEC, fairness in privatization process- its true value versus market value and subsequently the selling value of PSEs, success in attaining GSP Plus from EU- not in terms of political diplomacy but in terms of monetary gains and that how much has GSP Plus status contributed to overall export, future prospects of deals, relevant to gas supply to Pakistan, with Iran to meet energy shortfalls, truth about higher foreign exchange reserves, reliance on workers’ remittances, and political stability in country are yet to be answered satisfactorily.

The contributor is an MS Scholar of Banking and Finance at COMSATS, Abbottabad. He can be reached at syedsadaqatshah123@gmail.com

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