BR100 3,800 Increased By ▲ 13 (0.33%)
BR30 19,437 Increased By ▲ 63 (0.32%)
KSE100 36,745 Increased By ▲ 127 (0.35%)
KSE30 15,928 Increased By ▲ 27 (0.17%)
Sindh 106,622 Cases
Punjab 87,492 Cases
Balochistan 11,192 Cases
Islamabad 14,202 Cases
KP 30,747 Cases

EDITORIAL: Prime Minister Imran Khan's address to parliament claiming successes in the economic arena, in ensuring accountability, foreign policy and last but not least in formulating suitable policies with respect to the Covid-19 pandemic has generated a considerable controversy. While the Opposition as expected challenged the government's claims however fact-checking the Prime Minister's claims is appropriate.

Two major inaccurate statistics cited by the Prime Minister are: (i) a balanced primary deficit. The International Monetary Fund (IMF) staff level report on Pakistan's request for Rapid Financing Instrument dated April 2020 projected post-Covid-19 primary deficit of negative 2.7 percent (including grants) in 2019-20 which is to be brought down to negative 0.3 percent next fiscal year; it is to achieve this challenging however, unrealistic, target next year that the government was unable to raise salaries of civilian and military personnel. The Prime Minister without doubt has reduced the expenditure of ministries, including of his own office, dramatically, which must be appreciated however in a 7.29 trillion budget the savings he cited are miniscule; and (ii) federal Public Sector Development Programme has been raised this year to ensure growth, however the budget documents indicate an outlay of 650 billion rupees against the outgoing year's budgeted figure of 701 billion rupees. Conspicuously absent from the budget documents is the amount of actual disbursement in the outgoing year.

Current account deficit, the Prime Minister crowed, is the single most important macro-economic indicator which determines the health of the economy and without doubt his administration reduced it from 20 billion dollars in August 2018 to a little over 3 billion dollars in May 2020. Current Account C/A deficit is only one of the major macroeconomic indicators and reflects the borrowing needs of the country, the rate at which lenders would be willing to lend and the value of the currency. Growth on the other hand determines the level of investment, the level of employment, taxes/revenue that can realistically be generated and general public well-being. The PTI government envisioned borrowing 38.6 billion dollars (with an additional 2 billion dollars borrowed due to Covid-19) as far back as in July 2019 for the duration of the thirty-nine month IMF's Extended Fund Facility (EFF) programme. While holding no brief for PML-N finance minister Ishaq Dar's flawed policies, who raised external debt and liabilities from 60.89 billion dollars to 95.2 billion dollars in five years - a rise of by 34.3 billion dollars - the PTI government envisions external borrowing of 38.6.6 billion dollars (not counting the borrowing for Covid-19) in three years and three months. And while claiming that his government has not borrowed from the State Bank of Pakistan, a standard normal IMF condition implemented in the past as well, yet data in the recent Economic Survey indicates that domestic borrowing was 3.2 trillion rupees in 2008, 9.5 trillion rupees by 2013, 16.4 trillion rupees in 2018 and by April 2020 the amount of borrowing domestically by the government was 23.5 trillion rupees as per the SBP.

The Prime Minister also claimed success of his signature Ehsaas programme; however, this narrative is rather difficult to sell even to the majority of the beneficiaries as the Benazir Income Support Programme, subsumed by Ehsaas, began in 2008 and each successive year the two previous administrations raised the budgeted allocations and expanded the programme to include education, health and provision of other deficient social sectors.

The massive decline in growth rate cannot all be attributed to Covid19. Growth had begun to contract due to the contractionary fiscal and monetary policies agreed under the EFF that stifled economic activity pre-Covid19, raised unemployment levels and pushed more than fifty thousand families below the poverty line. As a consequence, manufacturing output declined, estimated at 41 percent, which is also attributed to the frequent press conferences by Shahzad Akbar, the accountability czar of the government, revealing the names of businessmen who are under investigation by the National Accountability Bureau (NAB). Thus while the Prime Minister was correct in arguing that his government did not make any appointments in NAB and most of the cases against members of the opposition began before he took over as the prime minister yet his team members' frequent revelations of damning documents against leaders of the opposition that they claim are in NAB's possession weaken this narrative. A better approach would be to wait for the results.

The Prime Minister claimed success in containing the pandemic; while his insistence that he consistently adhered to the same policy is a matter that is inconsistent with perception of people by and large, yet, one would hope that the Prime Minister turns his attention to the fact that lockdown, whether of 'smart' variety or not, has been relaxed in countries when the infection rate begins to decline (with fears for a second wave of infections being witnessed in China, South Korea and Germany) while Pakistan, as per the government, has yet to reach its peak. It needs pointing out that for an economy that is faced with Covid19 together with the ongoing contractionary policies a 7 percent discount rate though much lower than 13.25 percent is, in today's investment climate, still too high to lure domestic investors while the FBR has set another unrealistic target of 4.9 trillion rupees for next year notwithstanding the reduced taxes on industry and the growth projection of one percent next year as per the IMF and 2 percent as per the budget documents. Interestingly, while the IMF revised the growth target for outgoing year from negative 1.5 percent to negative 0.4 percent (perhaps to synchronize with the budget projection) yet it has revised its earlier growth target of 2 percent for next year to one percent which conveniently balances the revised IMF projections for the two years.

Foreign policy successes cited by the Prime Minister are noteworthy; however, the serious faux pas notably of referring to Osama bin Laden as shaheed did not serve the national interest; it actually served to buttress the narrative of Pakistan's enemies.

One must appreciate the Prime Minister; tone which was uncharacteristically subdued and not combative; however, his decision to deliver the speech and not hear his detractors led to visible anger from the ranks of the opposition. Khawaja Asif went so far as to state that support for the government would be difficult, no doubt a reference to the plea by the Prime Minister to agree to extend additional resources from the divisible pool to the merged areas, which had been previously agreed by the two major opposition parties.

This newspaper has suggested time and again that the Prime Minister needs to make an independent evaluation of his economic team's policies, their success and negative impact, if any, balance it out with ground realities, and given the large research departments under the Ministry of Finance and the State Bank of Pakistan, direct them to provide econometric models quantifying the impact of any policy decision on key macroeconomic indicators, particularly growth. And he must prepare for any speech he delivers publicly because a faux pas can at best be subject to ridicule by the opposition but at worst it could have negative implications on national interest.

Copyright Business Recorder, 2020