Lil Mathew
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Tuesday, October 22, 2013 - The International Monetary Fund in its latest report on global outlook warned that international growth would take another big hit if the US failed to raise its debt ceiling. As it was expected, Republicans and Democrats agreed to raise the debt limit to resolve the crisis. Anyhow, in a separate chapter on Pakistan and Middle East, the IMF in its report admitted that reduction in energy subsidies and depreciation of rupee will likely result in higher inflation in Pakistan. It means that people will have to pay more for electricity and depreciation of rupee. There will be increase in input costs of the industries in addition to enhanced sales tax by two per cent, which will be passed on to the consumers. Earlier, IMF conditions for the current loan included that India be given the status of Most Favored Nation; Pakistan should import electricity from India, and exerted indirect pressure to do away with the Iran-Pakistan gas pipeline. This amounts to bartering away Pakistans sovereignty.
Pakistans Economic Survey 2012-13, which was released a day before announcement of 2012-13 budget, stated that the country missed almost all the targets in different sectors of the economy. The GDP growth rate in the fiscal year that ended on 30the June 2013 remained at 3.6 per cent against a target of 4 percent. The fiscal deficit was 8.5 per cent against the target of 4.7 per cent, and against 14. 9 per cent target for investment the country could achieve 14.2 per cent. Foreign Direct Investment was projected at 1.8 billion dollars, but remained 800 million dollars. Public debt soared to Rs. 14000 trillion i.e. 61 per cent of the Gross Domestic Product, which is in violation of Fiscal responsibility Act. Ishaq Dar said that the International Monetary Fund (IMF) would be approached for fresh loan program to repay the previous ones. This knocks the bottom of the pretense of PML-N leaders who have been critical of the IMF loans or grants from other countries, but now they do not feel qualms for treading the beaten track.
Pakistan is indeed facing economic challenges vis-a-vis fiscal deficit, trade deficit and current account deficit. Deteriorating law and order situation, corruption, flawed decisions of inept leadership in the past, energy shortfall and prohibitive cost of energy have made many industries unviable, adversely impacting exports and the exchequer. The inevitable result is that Pakistan has missed all economic targets. As regards trade deficit i.e. excess of imports over exports, Pakistan has been trying to overcome this problem for more than half a century. Yet in 2012-13 Pakistans imports were $40 billion and exports at $24 billion resulting in trade deficit of $16 billion. It is unfortunate that despite more than $13 billion remittances annually from overseas Pakistanis during the last two years, our current account deficit was more than $3 billion. And government had to meet this shortfall and fiscal deficit through loans because of lowest rate of tax ratio to GDP ratio to tax. Similar was the case with ratio of savings to the GDP.
It is common knowledge that for higher growth there has to be substantial increase in investment. But the present rate of savings to GDP is around 12 per cent, which is lower if compared with the developing countries and emerging economies of the world. To have a 5 per cent growth, investment ratio of savings to GDP should be at least 15 per cent on the basis of ICOR 3:1, and especially when foreign investment is not forthcoming. The problem is that inflation hinders the capacity to save, as it erodes the incomes of the people, especially salaried class and fixed income groups. However, the most serious aspect of our dire economic situation is the growing public debt, which is more than 64 per cent of the Gross Domestic Product. Pakistans total debt amounts to Rs.14120 billion ($136 billion); foreign component is $60 billion and domestic debt is Rs.7880 billion ($76 billion).
It was due to the accumulation of debt-mountain that Pakistan had to allocate more than Rs.1000 billion for debt-servicing alone. It is unfortunate that despite being a resourceful country, Pakistan has been able to pile up such a huge public debt. In fact, we have been producing less and consuming more; earning less and spending more. It should be borne in mind that the magnitude of the public debt limits the fiscal space to invest in human development, in infrastructure, and also to enhance capacity to build strong defence.[/B] The threats faced by Pakistan have to be understood in the light of fast changing regional and international situation, which add urgency to revive the economy so that adequate resources could be allocated to defend Pakistans integrity and sovereignty. It is painful to note that every government in Pakistan continued to take loans by accepting and complying with harsh IMF conditions on the pretext that they have to take the loans to pay back the previous loans to avert default.
But the conditions of the IMF vis-à-vis increase in the rates of electricity, gas and other utilities produces the multiplier effect, leading to cost-push inflation making it impossible for the local producers to compete in the world market. In the domestic market, people have to pay more for everything, which erodes the incomes of salaried class and fixed income groups, pushing more and more people below the poverty line.
But this crisis is of our own making inept policies and the rampant corruption that has eaten into the vitals of the nation. The government should restructure the public sector enterprises because on the average these state enterprises are causing a loss of more than Rs. 500 billion per year, in addition to wastages, corruption, loot and plunder in other government departments, which is estimated around Rs.1000 billion per year. Last but not the least; imports should be rationalized, and the government must show zero-tolerance to corruption, tax evasion, wastages and mismanagement in public sector enterprises.
The writer is Lahore-based senior journalist.
Dismal economic indicators
Pakistans Economic Survey 2012-13, which was released a day before announcement of 2012-13 budget, stated that the country missed almost all the targets in different sectors of the economy. The GDP growth rate in the fiscal year that ended on 30the June 2013 remained at 3.6 per cent against a target of 4 percent. The fiscal deficit was 8.5 per cent against the target of 4.7 per cent, and against 14. 9 per cent target for investment the country could achieve 14.2 per cent. Foreign Direct Investment was projected at 1.8 billion dollars, but remained 800 million dollars. Public debt soared to Rs. 14000 trillion i.e. 61 per cent of the Gross Domestic Product, which is in violation of Fiscal responsibility Act. Ishaq Dar said that the International Monetary Fund (IMF) would be approached for fresh loan program to repay the previous ones. This knocks the bottom of the pretense of PML-N leaders who have been critical of the IMF loans or grants from other countries, but now they do not feel qualms for treading the beaten track.
Pakistan is indeed facing economic challenges vis-a-vis fiscal deficit, trade deficit and current account deficit. Deteriorating law and order situation, corruption, flawed decisions of inept leadership in the past, energy shortfall and prohibitive cost of energy have made many industries unviable, adversely impacting exports and the exchequer. The inevitable result is that Pakistan has missed all economic targets. As regards trade deficit i.e. excess of imports over exports, Pakistan has been trying to overcome this problem for more than half a century. Yet in 2012-13 Pakistans imports were $40 billion and exports at $24 billion resulting in trade deficit of $16 billion. It is unfortunate that despite more than $13 billion remittances annually from overseas Pakistanis during the last two years, our current account deficit was more than $3 billion. And government had to meet this shortfall and fiscal deficit through loans because of lowest rate of tax ratio to GDP ratio to tax. Similar was the case with ratio of savings to the GDP.
It is common knowledge that for higher growth there has to be substantial increase in investment. But the present rate of savings to GDP is around 12 per cent, which is lower if compared with the developing countries and emerging economies of the world. To have a 5 per cent growth, investment ratio of savings to GDP should be at least 15 per cent on the basis of ICOR 3:1, and especially when foreign investment is not forthcoming. The problem is that inflation hinders the capacity to save, as it erodes the incomes of the people, especially salaried class and fixed income groups. However, the most serious aspect of our dire economic situation is the growing public debt, which is more than 64 per cent of the Gross Domestic Product. Pakistans total debt amounts to Rs.14120 billion ($136 billion); foreign component is $60 billion and domestic debt is Rs.7880 billion ($76 billion).
It was due to the accumulation of debt-mountain that Pakistan had to allocate more than Rs.1000 billion for debt-servicing alone. It is unfortunate that despite being a resourceful country, Pakistan has been able to pile up such a huge public debt. In fact, we have been producing less and consuming more; earning less and spending more. It should be borne in mind that the magnitude of the public debt limits the fiscal space to invest in human development, in infrastructure, and also to enhance capacity to build strong defence.[/B] The threats faced by Pakistan have to be understood in the light of fast changing regional and international situation, which add urgency to revive the economy so that adequate resources could be allocated to defend Pakistans integrity and sovereignty. It is painful to note that every government in Pakistan continued to take loans by accepting and complying with harsh IMF conditions on the pretext that they have to take the loans to pay back the previous loans to avert default.
But the conditions of the IMF vis-à-vis increase in the rates of electricity, gas and other utilities produces the multiplier effect, leading to cost-push inflation making it impossible for the local producers to compete in the world market. In the domestic market, people have to pay more for everything, which erodes the incomes of salaried class and fixed income groups, pushing more and more people below the poverty line.
But this crisis is of our own making inept policies and the rampant corruption that has eaten into the vitals of the nation. The government should restructure the public sector enterprises because on the average these state enterprises are causing a loss of more than Rs. 500 billion per year, in addition to wastages, corruption, loot and plunder in other government departments, which is estimated around Rs.1000 billion per year. Last but not the least; imports should be rationalized, and the government must show zero-tolerance to corruption, tax evasion, wastages and mismanagement in public sector enterprises.
The writer is Lahore-based senior journalist.
Dismal economic indicators
