Editorial: The Economic Survey

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Finance Minister Ishaq Dar while unveiling the Economic Survey 2016-17 yesterday claimed a steady improvement in the performance of all productive sectors each subsequent year that he has held the finance portfolio.

He constantly referred to 2012-13 which was marked by three administrations: eight and half months of the PPP-led coalition government, around three months of the Caretakers and three weeks of June 2013 with Ishaq Dar as the Finance Minister during which period he borrowed 480 billion rupees to retire the circular debt. However, little that he revealed was new information as these figures were shared with the International Monetary Fund (IMF) under Article IV consultations uploaded on the Fund website in the first week of April this year and the Annual Plan (review of the current year and proposed for next year) that was published by Business Recorder on 24th May 2017.

Dar, as has become the norm, harangued against those who constantly challenge government data and stated that while abroad he is consistently told that this is creating confusion. Desist, he warned, because the country’s economic take-off is at stake and cited a report by Price Water House Cooper’s which projects Pakistan becoming the world’s 20th largest economy by 2030 and 16th largest by 2050 and other supportive international publications, including Bloomberg. This newspaper has urged successive administrations to delink the Pakistan Bureau of Statistics (PBS) from the administrative control of the Ministry of Finance at best or allow those who point out discrepancies/lack of rationalization with other government-affiliated departments as well as credible industry data to meet with PBS officials to resolve their concerns once and for all. There is therefore a need for making a policy board of PBS of data users.

There are indications that the output data shared by the provinces with the Pakistan Bureau of Statistics (PBS) especially relating to small-scale industries is not quality data as there are no checks and balances to verify it while there are also concerns that the PBS’s tabulation of data received from the provinces maybe more than the sum of its parts to reflect favourably on the policies of the federal finance ministry. In this context, the growth rate of 5.3 percent would no doubt be challenged as would data relating to its components notably agriculture and industry.

At the risk of restating what has been repeatedly stated, one would urge Dar to take note of the following six elements. First, the Ministry of Agriculture recently projected a growth of no more than 2.5 percent due to lower projected wheat and cotton crop because of adverse weather conditions. Sugarcane was more profitable resulting in shifting area under cultivation from cotton to cane. However, for the current year cotton is provisionally shown to achieve a 25.4 percent higher yield with area under cultivation declining by 413,000 hectares and output projected to rise to 10.6 million bales from 9.9 million bales last year. One would have to wait for the final figure to acknowledge the veracity of this claim. However, Dar maintained that the farm sector growth can be attributed to the 2015 September 380 billion rupee Prime Minister’s farm package which maybe a stretch of the ground realities as little effort was focused on raising yield with the focus mainly on releasing the 20 billion rupee fertiliser subsidy (which was to be paid in equal amounts by the provinces and the centre but after the provinces stopped the release the centre stepped in to meet the shortfall).

Second, the State Bank of Pakistan’s quarterly report noted that LSM growth is sugar-specific (accounting for only 3.5 percent of LSM) as growth excluding sugar rose by 4.4 percent and unfortunately, those sectors that rely heavily on imports particularly automobiles accounted for the bulk of the LSM growth. The SBP also noted that sectors with high growth have reached capacity and unless capacity is increased there will be no further increase in output.

Third, exports, Dar claimed, have declined and imports increased but attributed the former to low commodity prices and the latter to rising oil prices. One would assume that the SBP’s note on capacity may have prompted Dar to claim that a rise in machinery imports accounted for the bulk of the import rise of 6 billion dollars from 2016 to 2017. Machinery imports as per the Survey accounted for 2.1 billion dollars with power generating machinery accounting for one billion dollars though this is unlikely to give a comfort level to the general public at present suffering from heavy load shedding. Petroleum products accounted for another one billion dollar rise in imports; however, this is mainly attributed to a rise in quantity – 54.7 percent rise in quantity of petroleum products imported and 38 percent in crude.

Fourth, the rupee, he noted belligerently, is not overvalued and that does not account for a decline in exports. One would be tempted to suggest to him to read the quarterly reviews of the IMF where the overvalued rupee is consistently noted as a major deterrent to increasing exports and the press note uploaded on the Fund’s website after Article IV consultations advised that “greater exchange rate flexibility and efforts to improve export sector productivity are needed to address the widening trade deficit.” In addition, the SBP website notes that in March 2013 the real effective exchange rate (REER) was 101.517 while the average exchange rate for the month was 98.0615 or a difference of 3.4565. In November 2016, (the last month this exercise was carried out) the REER was 125.98 with the average exchange rate for the month at 104.693 – a difference of 21.29. The Survey 2015-16 notes revaluation gains with respect to public debt and notes that the impact of fresh external borrowing was partially offset by revaluation gains during the first nine months of the current fiscal year which explains the reasons behind the growing differential between REER and average exchange rate for the month.

Fifthly, Dar noted a rise in tax revenue by 86 percent from 1,946.4 billion rupees in 2013 to 3,621 billion rupees in 2017. However, this was largely attained by an across the board increase in the levy of sales tax, raising taxes on existing taxpayers, including double taxation; for example, a salaried individual would pay income tax and on each withdrawal of more than Rs 50,000 from the banking sector, raising regulatory duties, and by allowing the non-filers to pay a higher rate on purchases of products/services, including banking services (even those who are exempt from filing returns) as well as mis-defining indirect taxes as direct taxes by categorising withholding taxes applied in the sales tax mode as direct taxes.

Finally, total domestic debt rose from 9,521.9 billion rupees in 2013 to 14,748 billion rupees in 2017 – a 54 percent rise in just four years and external debt and liabilities rose from 60.9 billion dollars in 2013 to 75.7 billion dollars in 2017 – a rise of 24 percent in just four years. In addition, the Survey notes that commercial loans were provisionally zero in the current year though in the text it notes that the government borrowed 1,315 million dollars from commercial lenders abroad.

What, however, is baffling is that Ishaq Dar did not mention the China Pakistan Economic Corridor (CPEC), the game changer, in his remarks. There is a two- and a half-page annexure on the CPEC noting all the proposed projects but there is lack of information with respect to financing of these projects that indicates that perhaps the Economic Advisor’s Wing is as clueless about these projects as the rest of the country.

 

 

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