Ihtasham ul Haque
THE last two years have witnessed somewhat an improved GDP growth rate, though it still lags behind other South Asian countries. During previous PPP regime, the country remained hostage to paltry three per cent growth rate against the average 6-7 per cent seen in many last decades.
The PML-N government, no doubt, when came into power had an uphill task to improve the sluggish growth rate. It faced further serious economic and financial problems in the wake of IMF’s suspended over $11 billion package which was given to the Zardari-led incompetent PPP government.
The PML-N government had been saying before and after May 2013 general election it will not seek any IMF bailout package. But it ought to go for one to what it called to “get out of the economic mess”, created by the previous rulers.
Since the world economy had been facing challenges over the years, the country like Pakistan did have many options to increase its growth rate and thus create an overall enabling environment for greater economic activities particularly by attracting bigger level of local and foreign investment.
Foreign investment is one of the major components that ensures better GDP growth rate for any country. Foreign direct investment (FDI) came down to mere $700-$800 million during the PPP regime and during the last three years of the current government compared to $5.5 billion of 2008.
Pakistani government till now blames the PPP government for not delivering on any economic front. It maintains that it is struggling hard to achieve certain turnaround in the economy by perusing prudent economic policies. The finance minister takes pride in saying every now and then that the country is no more in the economic mess as it is managing 4.5 to 5 per cent plus GDP rate during the last three years. He may be correct to some extent but his government and the future governments will have to think out of the box and implement policies that are desperately needed by the country. The buzz word, however, is consistency and implementation of policies that have been agreed between Pakistan and the International Financial Institutions (IFIs) – mainly the World Bank, IMF and the Asian Development Bank (ADB).
In our context, China and India are very important in terms of improving the much needed GDP growth rate without which there is no concept of greater development across Pakistan.
New reports suggest Chinese economy would fare well during the second half of the current year after achieving 6.7 per cent growth rate and that it will also be good for the world economy. Chinese growth rate, which has come down from 10 per cent to 6.7 per cent is still seen as positive for other bigger economies. Chinese economy continues to be at number two after the United States and is likely to beat the sole world power in next few years. Experts predict that no power on earth can stop China from becoming a number one economy as the United States is struggling to grow by 1.9 per cent, the Eurozone economies by 1.6 per cent and Japan by 0.5 per cent this year.
The World Bank has cut its growth rate forecast for the world economy from 2.9 per cent to 2.4 per cent this year but it believes China would achieve 6.7 per cent growth and that China still stands out and continues to be the fastest growing economy in the world.
Interestingly, it is also being said that India is expected to manage 7.6 per cent GDP growth rate this year, though within India, economists are terming it an exaggerated figure by saying that it is a mere a propaganda of the BJP government.
Unlike the United States, Chinese economy is greatly being linked to the world economies and its improved growth rate is perceived to be good for the developing as well as developed countries. China is also for the first time reaching to the poorest of the poorest in Africa and elsewhere by expanding their physical infrastructure and by giving them all possible loaning facilities.
It was the time when western world used to suspect very impressive GDP growth rate of China but now when they are wittingly or unwittingly accepting that, they are requesting the Chinese leadership to cut down their growth rate to help other international economies to grow.
China, therefore, is cutting its growth rate by design from over 10 per cent to 6.7 per cent and is believed to be contemplating 6.5 per cent growth rate during 2016-2020 and 4.5 per cent in 2020-2030. The objective is to consolidate its unparalleled economic achievements and at the same time avoid the collect wrath of major economies led by the United States.
The Chinese over $10 trillion economy is further expanding and its growth rate is interestingly decreasing and all this is being done by the Chinese authorities deliberately to remain relevant in the world’s economic and financial affairs.
Now India is following China and Pakistan is following Indian model to manipulate economic numbers to show higher growth rate. Compared to $10 trillion Chinese economy, India is managing its close to $2 trillion economy while Pakistan is trying to maintain its $283 billion struggling economy.
There is a debate going on within India that why should the Indian government claim of achieving 7.6 per cent growth rate which many Indian economists believe is just hovering between 4 to 4.5 per cent and that there is no need to artificially compete with China which is far superior than India in every respect.
There are allegations being levelled against some other countries including Brazil and Pakistan where figure fudging is taking place. The Brazilian parliament has recently impeached its President for manipulating economic figures to show higher GDP growth rate.
Independent economists in Pakistan have been alleging that economic numbers particularly that of growth and revenue are often manipulated by the Bureau of Statistics and the federal of Revenue (FBR) at the behest of the senior officials of the ministry of finance. At times it has been seen that even the IMF, which is otherwise accused of being partner in crime by not honestly assessing the state of the economy in its previous eight reviews, has disapproved the growth numbers. For example the Fund officials differed with the finance minister by placing the growth figure at 4.2 per cent of the GDP against that of 4.5 per cent worked out by the officials of the ministry of finance in the financial year 2014-15. So was the assessment of the World Bank and the ADB.
The IMF had been giving waivers to the Pakistani economy in the backdrop of international security environment with a view to help the government to successfully complete its $6.67 billion three years bailout package failing which the country could default. It is said that today’s IMF is different than that of 80s, and 90s when if the government failed in meeting performance criteria, its assistance was immediately suspended. Ever since 9/11 took place, the IMF, it is perceived, has turned out to be totally subservient to the United States and can hardly say no to it. The Fund officials are learnt to have suspended their financial assistance to the previous PPP government because of its blatant corrupt practices and even serious allegations were levelled against top functionaries including former President Asif Zardari.
Today the PML-N government claims that it met all the qualitative performance criteria which is why the IMF continues to offer uninterrupted funds to help shore up the country’s foreign exchange reserves which today stand over $21 billion.
The government deserves appreciation that it did not default and kept managing regular flow of foreign funds. But then its critics ask how many billions of dollars came in the kitty as part of the loan? They maintain that these reserves include close to $5 billion given by the IMF and $4-5 billion were extended by other IFIs, while $5 billion are being maintained by the commercial banks.
Overseas Pakistanis are sending $14 to $15 billion annually to Pakistan which is one of the major sources of earning. These 80 per cent remittances come from Gulf Cooperation Countries (GCC) and 20 per cent from the rest of the world. The PML-N government is being urged by loyalists in the ruling party to use its influence to increase the share of Pakistani manpower in GCC region, where the Indian prime minister went recently and tried to replace the existing small Pakistani manpower with that of Indian one. Indian manpower is today going as far as Cuba. Now when Pakistani exports including that of textiles, carpets and garments have significantly gone down, there is certainly a big scope for enhanced manpower in GCC which as a first step could be started by getting the existing ban lifted in Kuwait.
Going forward the government will have to set its priorities right to achieve better growth rate- 7 per cent plus by undertaking the much sought after structural reforms in the key areas like energy and revenue and by taxing the untaxed particularly the agriculture income. The international fame late Pakistani economist Dr. Mehboob ul Haq used to say that Pakistani landed gentry earned Rs600 billion annually but did not pay even Rs10 billion tax on its income. The government cannot achieve better growth rate by imposing 70 per cent indirect taxes every year. It needs to go for direct taxes and should tax every potential Pakistani to achieve the desired results and this is how some respectable GDP growth rate could be expected.