The main reason for falling exports is the fact that since this government came to power in 2013, it has increased the cost of doing business. Our export industry has become less competitive in the world.
The government policy, created in collaboration with the IMF, raised indirect taxes and controlled (Asad used the word
administered) prices to improve revenues. This dented the competitiveness of Pakistan’s industry. There is also a point of view that the exchange rate has become over-valued. After two years of consecutive decline, exports in the current fiscal year have further fallen by 9.0 percent, while imports increased by 12.5 percent, widening the trade deficit
The widening trade deficit
Trade deficit contributes to the widening of the current account deficit, which more than doubled in the first quarter of the current fiscal year to $1360 million. The current account deficit is now 60 percent higher compared to the last fiscal year.
Another worrying factor is that workers’ remittances were down by five percent in the first quarter and by ten percent in September. One obvious reason is the economic slowdown in the Gulf economies due to the fall in oil prices. However, even remittances from Europe and the US have stagnated or declined. Perhaps this was inevitable after many years of strong growth. It’s a challenging situation. Either the forex reserves will decline sharply or the government will have to take more loans.
the PTI, are old fashioned in a way that we see a role of the State in running and setting up large industries and don’t believe in large scale privatisation
Investment continues to be stuck at exceptionally low levels, actually showing a decline from 15.5 to 15.2 percent in the last fiscal year. Private investment in the last year was a meager 3.3 percent which is the lowest in the last three years. Foreign direct investment in the last quarter was even worse than the low levels recorded last year and one-fifth of what Pakistan witnesssed a decade ago. Foreign portfolio investment last year was negative $437 million. There will be an uptick in the FDI related to the CPEC projects and the sale of majority shares in Engro Foods to a Dutch company. However, broadly speaking, prospects for FDI continue to remain unpromising.
Private sector investment
The local private sector is not investing in Pakistan. In the last year of General Pervez Musharraf’s rule, private investment was around 22 percent of the GDP. Under Nawaz Sharif’s rule, it declined to 17 percent of the GDP in the last fiscal year. Economic growth is not picking up mainly due to lack of investment.
Large scale manufacturing output has recorded a growth of only 3.2 percent, which is the lowest in the last four years. The growth in this sector has slowed down to less than 2 percent in the first quarter of this year. The regressive taxation policy of this government and its inability to solve the energy crises has choked the economy and manufacturing in particular. The near term future for manufacturing, except some construction related sectors, does not look very bright.
During the first three and a half years of Nawaz Sharif’s rule, not even one unit has been privatised; the $1.1 billion privatisation proceeds were raised mainly from the capital market by off-loading shares of already privatised companies. This poor performance is stunning because privatisation was an integral part of the PML-N’s manifesto. We, the PTI, are old fashioned in a way that we see a role of the State in running and setting up large industries and don’t believe in large scale privatisation.
The shrinking agriculture sector
Two-thirds of Pakistan’s economy depends upon agriculture, but in the last fiscal year, this sector recorded a negative growth of 0.2 percent. The fundamentals of agriculture have been eroded by years of neglect. Agri-research has almost come to a standstill. Work on the efficient use of water has stalled and distribution channel linkages remain neglected. The post-harvest storage facilities are also in as poor a condition as ever. Just by playing accounting gimmicks and putting together a largely false package we will not be able to help the farmers or improve agriculture.
Mounting public debt
There has been an alarming increase in public debt from 63.2 percent to 66.5 percent of the GDP in just one fiscal year that ended on June 30, 2016. It should be noted that according to the Fiscal Responsibility and Debt Limitation Act, Pakistan’s public debt-to-GDP ratio should be no more than 60 percent.
In the last three years, our external debt has jumped to $73 billion from $61 billion. This is causing two problems. Firstly, debt servicing is eating up a huge chunk of our federal revenues. Secondly, our ability to repay the external debt has significantly worsened. We are in no position to repay the external debt after the completion of the IMF programme and start of the repayments. Therefore, some bailout in the next two to three years is inevitable. The only question; will the bailout come from the IMF or some other source? Of course, this external account bankruptcy severely compromises our sovereignty and makes us vulnerable to external pressures and compromises on key issues.
Listening to the statement by the IMF Director, Christine Legarde, one is reminded of the book “<em>Confessions of an Economic Hitman</em>” by John Perkins. Her claim that Pakistan’s economy is stable and out danger, appears to be either a reflection of her staff members doing poor quality analysis, or the IMF is deliberately trying to encourage Pakistan to sink deeper into a debt hole.
The reality is that the IMF has supervised a programme over the last three years, which has eroded the competitiveness of Pakistan’s economy, reduced public welfare and increased the vulnerability of Pakistan’s external account, increasing our reliance on external borrowing.
It is up to the people of Pakistan to decide whether the political compulsions of the IMF have made it endorse and overlook flawed economic policies of this government, or is it by design that Pakistan has been encouraged to accept policies which increase external reliance, making it susceptible to international pressure as a part of a global strategy to get Pakistan to do more.
Independent economists say that Pakistan’s foreign exchange reserves have been built up mainly on borrowing. They will be reduced to half their current levels by 2018xxxxx. This entire build up in reserves is due to the increase in external debt which is clearly not a sustainable strategy. In the last three years, there has been a $12 billion increase in reserves and a $12 billion increase in external debt. In addition, more than $1.0 billion of national assets have been sold to foreigners through privatisation-related transactions. So if adjusted against these factors, the reserves have actually declined.
There was a power short fall of between 4500 MW and 4800 MW by the end of October despite the fact that there is a decline in demand due to the beginning of the winter season. The peak demand shortage according to NEPRA was higher last year than it was when this government came into power. There are a number of power generation projects that are under construction, but load-shedding will continue even by the time this government completes its term. The power generation projects are severely delayed and the distribution and transmission system projects are even further behind schedule. The nation will continue to suffer from massive electricity shortages even in 2018.
Losses in public sector companies
The losses in the public sector companies are on two counts; power sector losses, which are about 80 percent of the total, and the losses incurred mainly by the three giant State-run entities; PIA, Pakistan Steel and the Railways.
When Musharraf quit power, the Steel Mills’ capacity utilisation was around 75 percent. It was running in profit for seven consecutive years and even paid dividends. During the five-year PPP rule, the Steel Mills went into the red and it started booking massive losses as its capacity utilisation dropped to a mere 14 percent. Then came the rule of the Sharif family, which has been in the steel business for the past three generations. Nawaz Sharif evens boasts that his father set up this industry from scratch after Zulfikar Ali Bhutto snatched all their money, Similarly, Sharif’s sons made billions from nothing. But under Nawaz Sharif, the Steel Mills’ operations came to a grinding halt and for the first time ever in history it has remained closed for the last 17 months.
It is up to the people of Pakistan to decide whether the political compulsions of the IMF have made it endorse and overlook flawed economic policies of this government, or is it by design that Pakistan has been encouraged to accept policies which increase external reliance, making it susceptible to international pressure as a part of a global strategy to get Pakistan to do more
PIA earned more revenues when it operated with 21 aircraft, but now with a fleet of 39, the airline is earning less and continues to operate at a loss. The reason; this government has sold out Pakistan’s interests by awarding landing rights mainly to airlines from the Middle East, which have eaten away PIA’s business.
The losses of Pakistan Railways remain as they were before. Sharif claimed that he has the most experienced team and said that he would turn around such organisations within weeks. But the performance of this most experienced team is miserable.