Mohammad Zubair
The PM is claiming that the economy has finally started to turn around. His ministers and dozens of government spokespersons claim the same. In support of this, they cite certain economic indicators. The one that is quoted the most is the current account which from a large deficit in June 2018 has been turned into surplus. Not bad, one would wonder. But not really, as you look at the manner in which current the account has been turned from negative to positive.
Achieving a positive current account by itself means nothing.
If the current account surplus has been achieved with following factors, one would really appreciate:
1. Through significant increase in exports. That has not been the case. In fact exports by end June 2020 were less than where PML-N left in June 2018.
2. Whether the dollar reserves went up significantly as a result of surplus current account. That has not been the case either. The foreign exchange reserves remain precarious in spite of significant amounts received from friendly countries. 3. The most significant factor should have been an improvement in overall economy. That has not happened as we shall see later in the article when we review the overall economic situation. So how has the current account surplus been achieved. Well through a combination of factors that had devastating consequences for the economy – more so for the masses. Let me summarise:
1. Stifling imports. This has led to massive contraction of the economy reducing our GDP from around dollars 315 to 265 billion in 2 years. This in turn has led to:
– reducing tax collection. A significant amount of tax revenue is collected at the import stage. A lower tax collection means lower dis tribution to provinces under NFC and therefore less spending on education, health, housing, water projects, road network, public transportation etc etc.
– with less plant & machinery and raw material being imported, economic activity has further contracted.
The overall result of improving current account only through containing imports is for everyone to see. Rather than any improvement, the affects have been all negative.
The other question is whether the surplus is sustainable going forward. As soon as the economy starts to grow at reasonable levels, the current account deficit will start to build up. This is only natural.
Important here to let the readers know why the current account deficit grew so large in the last 18 months of the PML-N rule. In the first 3 and a half years, current account was very much under control and only started to grow once the plant & machinery, vital for completion of power projects, was being imported. The choice was very simple – complete the power projects ensuring uninterrupted electricity or no electricity ensuring no built up of current account deficit. Providing electricity was fundamental to Pakistan’s future economic growth. At the same time we had plans to reduce the current account deficit through various measures that would have allowed increasing our reserves significantly.
Ensuring current account surplus without bringing in economic prosperity is meaningless and does not point towards economic revival. Let’s look at few other factors which according to the government is reflecting a turnaround:
1. Sales have gone up in few cases e.g cars, cement etc but only when compared to last year. Same is true of large scale manufacturing. The first two years of PTI government were pathetic – possibly one of the worst in our history. Does not make any sense to compare present results with PTI’s own poor performance last year. Better to compare numbers against those achieved during the last year of PML-N government. For example, the PM talked about the impressive stock exchange performance in recent months against its own poor performance last year when stock market crashed dramatically. When PML-N left in June 2018, the index was 43000. It is presently around 42000 – still lower than where it was in June 2018. After 2 years in power during PML-N tenure, the market index went up from 19000 to 30000 – a 57 % increase. That’s what great performance means. The market nosedived in the first 2 years and when compared with its own past, the present performance will start to look good.
More important let’s look at some of the more relevant numbers to see if the economy is showing any signs of turnaround:
– inflation especially food inflation continues to be very high and the government has failed to control the rising prices. Add to this the scams – sugar, wheat, tomatoes etc.
– unemployment is at an all time high. More people continue to lose jobs rather than gaining jobs. The promise of 1 crore jobs over 5 years is dead & buried. On the contrary about 7 million people have lost jobs in last 2 years.
– more people have been pushed below the poverty line in last 2 years than at any other time in history. The pace at which people continue to go below the poverty line is unprecedented.
– GDP growth at June end was minus 0.4%. This is only the second time in our history that we had negative growth.
– the power sector is in a dismal condition as reflected in the build up to the circular debt which has more than doubled in last 2 years.
– public sector enterprises are bleeding more heavily than at any time in our history as evidenced by the the massive increase in losses & liabilities.
– tax collection remains abysmally low showing almost no growth even after 2 years. Compare that with doubling of tax revenues in 5 years of Pmln rule.
– total debt & liabilities have gone up from less than Rs 30 trillion to Rs 45 trillion in just 2 years. Total debt & liabilities now exceed the total GDP – again for the first time in history.
The state of the economy is in tatters with no signs of recovery. That is the reality and statements to the contrary only reflect either fooling the people or not understanding the real picture or a combination of two. It would be better for the government to compare results not with its own poor performance of the last 2 years but where the economy was when it came in power in August 2018.
Or even better ask any Pakistani whether economic conditions are better today than they were in Aug 2018. The answer will be a resounding NO
