NEWS & VIEWS
ADVISER to PM on Finance, Revenue and Economic Affairs Dr Miftah Ismail on Friday said that Pakistan was set to achieve high GDP growth rate during the current year again, and hoped to maintain this momentum in the coming years due to robust performance of the real sector of the economy. When government could not achieve its targets with regard to fiscal deficit, balance of payments vis-à-vis exports and imports; Pakistan’s external debt is around $90 billion, economic reserves have declined to $12 bn. How Pakistan could achieve the robust economic growth in the case of dismal economic indicators. Yet PM says economy is in good shape. In the second quarterly report for FY18, SBP had stated: “Pakistan’s economy surpassing last year’s growth rate (5.3%) appears strong…GDP growth is likely to remain slightly below the target of 6% (in fiscal year 2018).”
However, SBP report had stated: “Risks to overall macroeconomic stability have increased due to widening imbalances in the country’s balance of payments. Reserves have already fallen to less than three months of the country’s import bill.” It projected that remittances of $20.5 billion from overseas workers in FY18 would be slightly lower than the target of $20.7 billion; and imports may shoot up to $54.3 billion against the target of $48.8 billion mainly due to heavy oil imports and imports of textile and steel inputs. However, the growth in exports would remain insufficient to finance the gap in current account deficit. The report highlighted that the growth in revenue collection outpaced the increase in expenditures in H1-FY18, which led to a broad-based improvement in fiscal indicators. In view of the above situation, how SBP can talk about improvement in fiscal indicators?
On Saturday, Miftah Ismail in an interview with Bloomberg media group said: “Pakistan had to devalue its currency twice – first in December by five per cent and then in March by five per cent, but does not see further devaluation.” Despite that vow, devaluation of local currency against the US dollar continued in the open market as the greenback hit an all-time high of Rs.118.20. Till Friday the inter-bank market remained unchanged at Rs.115.65, but on Saturday it was Rs 118.20 per dollar. Over the past four months the rupee has been devalued by 9.5 per cent (official devaluation indicated in the inter-bank market). But can devaluation help increase exports and discourage exports? No, it hasn’t happened. On March 27, 2018, Bloomberg quoting IMF’s statistics said that Pakistan’s foreign reserves may drop to an alarming level. Anyhow, the present level of forex reserves is hardly enough for 3 months’ imports.
With foreign reserves dwindling because of increasing imports and declining exports, the government needs an International Monetary Fund bailout to avert a balance of payments crisis. The government and the SBP believe that with effective devaluation a weaker local currency would help the economy grow and contain balance of payments pressure. The SBP had previously attempted to devalue in July but the move was reversed by the-then Finance Minister Ishaq Dar, who claimed he was unaware of the central bank’s plan and ordered an investigation. But it is not possible to stop the decline in Pakistan rupee value through artificial means, as the market forces determine the exchange rate. In 2016-17, Pakistan’s imports registered at $51 billon and exports at $19 billion, the demand for dollar increased, and value of rupee declined. The trade deficit was $32 billion, and with $19bn expatriates’ remittances, the current account deficit was $13bn.
It was unfortunate that despite fall in the oil prices in the international market in the past, the gap between imports and exports continued to increase during the last three years. The fresh statistics have caused concerns about long-term sustainability of the external sector. Owing to the swelling trade deficit, the balance of payments of the country is now projected to worsen to levels never seen in the past. Independent economists say the ballooning trade deficit has finally exposed vulnerabilities of Pakistan’s economy, as despite incentives offered by the government, exports are not picking up. There is a perception that these packages have remained partially funded causing resentment among exporters. One would not understand how in the recent past, the IMF and other financial institutions have been drawing a rosy picture about Pakistan’s economy, when it failed to meet the targets of fiscal deficit, trade deficit and current account deficit.
It appears that to manage economy, Pakistan will have to fall back on the IMF and other international finance institutions, and per force accept the conditionalites attached with the loans that are more often than not against the national interest. Otherwise also, Pakistan’s problem is growing public debt, as debt servicing – loan installments and interest – would consume about 33 percent of the federal revenue. Unprecedented growing public debt on one hand limits the capacity to build strong defence and on the other limits fiscal space to invest in human development and infrastructure. Over 25 million school-age children are estimated to be out of school and 20 million of them are between 10 and 16 years old; and efforts to reach them have been negligible. More than 3.7 million of our labour force is unemployed; and about half of total population is victim of food insecurity. This could lead to chaos, uncertainties and even anarchy.
—The writer is a senior journalist based in Lahore.