The economic data compiled by various government agencies has come under a lot of criticism during the present tenure of the PML (N) government. The mistrust has reached a stage that Institute of Policy Reforms (IPR), a respectable think tank, has even questioned the method that Pakistan Bureau of Statistics (PBS) employs to estimate growth rates in national accounts. According to its analysis, several assumptions increase GDP growth estimates and it was important to change the fundamentals underlying growth and the macroeconomic framework. “It is no surprise that the economy missed most targets. What is surprising is that this happens each year and no one draws a lesson”. The think tank also has not agreed with government’s claim of a turnaround based on a “comprehensive programme of economic revival.” The continued fiscal and current account deficits are real sources of concern and the economy stands on weak pillars. FY17 5.28 percent GDP growth rate was not only shy of the target of 5.8 percent but was contributed by a modest growth of 3.46 percent in agriculture from last year’s low base when crop production had declined. Fiscal deficit had already breached its target of 3.8 percent for the year and the IPR expects it to be about 4.5 percent of GDP during FY17. The current account deficit too is in a very bad shape. Compared to the target of dollar 4.5 billion for the whole year, it reached dollar 7.25 billion by April, 2017 and is likely to end up at about dollar 8.5 billion, nearly twice the government’s projection. Savings and investments must increase for the economy to grow. Investment to GDP ratio this year is 15.8 percent as against the target of 17.7 percent while saving rate is 14.3 percent as against the target of 16.2 percent. Power supply and other public services continue to be an issue. The China Pakistan Economic Corridor (CPEC) is an opportunity for sustaining long-term economic growth but such a stimulus requires fundamental reforms, increase in saving and investment, control on twin deficits, workers’ skill training, R&D, infrastructure and governance reforms to support business activity.
The IPR analysis is in sharp contrast to the budget speech of the Finance Minister in which he had stated that government was able to put Pakistan back on the growth trajectory. “Now we need to further strengthen our economy in order to take it on the path of higher, sustainable and inclusive economic growth,” according to him. Pakistan now needs to focus on second generation reforms, including deepening of financial market, enforcing property rights, etc., to build an institutional foundation “that can sustain economic growth and give protection against external shocks.” In our history of last 70 years, we had period of high growth but these were frittered away by subsequent epochs of poor governance and economic mismanagement. Ishaq Dar said very proudly that his government had been successful in improving the economic situation in the country but such a statement needs to be tested against the IPR analysis which is also based on facts on ground.
It is obvious that the IPR and the government have contrasting views on country’s economy. It is also a fact that IPR is not talking in thin air. A higher growth during FY17 for which the government is taking a lot of credit is due to better weather conditions for the agriculture sector and several favourable assumptions on the growth estimates. The Finance Minister seems to believe that the country has crossed the stage of macroeconomic stabilisation and is now well on its way to growth trajectory on a sustainable basis. The latest data show that such a claim is not justified. Fiscal and external factors that constitute the main indicator of economic stability are deteriorating fast, belying such a claim. Low saving and investment rates also continue to be a big issue. The CPEC is of course a saving grace but is foreign-funded and its utility to the country would depend on efficient use of resources. However, such a manna cannot be taken for granted and would be forthcoming till China is happy with the country, although this massive Chinese investment is no manna at all because of a variety of core economic reasons. We don’t know why Dar does not listen to independent analysts and describes them as “spin doctors” when he should be grateful to them for giving free advice. However, he is right when he repeats his call for a “charter of economy” and evolving a broad agreement around various issues among political parties inside and outside the parliament. Each party could nominate a senior leader who is well-versed with economic management to find an agreement on some serious issues of country’s economy. They could, for instance, forge a unity about the fate of Public Sector Enterprises (PSEs), reform the tax system and lessen the debt burden. Every government favours privatisation or restructuring of PSEs but changes its stance when the same government finds itself on the opposition benches. This year is particularly suited for such a consensus when the government is taking populist measures due to upcoming elections. Next government may find itself in more difficulties if such a consensus is not evolved anytime soon.