Dar’s dilemma

Finance Minister Ishaq Dar continues to be optimistic about the prospects of country’s economy. Addressing representatives of the print media recently, he said that budget deficit had already been reduced from 8.8 to 5.2 percent by increasing revenues by 16 percent, cutting expenses of the PM’s House by Rs 40 million and abolishing unaudited secret funds of 34 departments, except those of ISI and Intelligence Bureau. The government had also planned to reduce it further to 4 percent of GDP by exercising strict fiscal discipline. Macroeconomic indicators such as those pertaining to the stock market, value of the rupee and revenue generation have improved considerably. Authorities are also striving to tackle the problem of terrorism and make speedy progress in education, health and energy sectors. Road shows were conducted in the Middle East and Sukuk was launched which was oversubscribed by 14 times. Moody’s changed Pakistan’s rating from negative to stable and Japanese agency JITRO announced that Pakistan would be the second best choice for foreign investment while international financial institutions said that the country could become the 18th biggest economy of the world. The government is committed to ending corruption, ensuring transparency and taking foreign exchange reserves to the level of dollar 15 billion by December 31, 2014. Previous government had ignored the imperatives of economic growth and revenue generation and international financial institutions were predicting that Pakistan would default in 2014. It had also given a subsidy of Rs 600 billion to industrial, commercial and other consumers who could afford to pay full electricity bills. The Finance Minister, however, reminded that Pakistan is caught up in a vicious circle and “everybody has to work hard for the betterment of the country”.

The list of achievements cited by the Finance Minister appears to be impressive and seems to have been highlighted with a purpose. Obviously, if the representatives of the media could be taken into confidence and successfully persuaded to believe that the economy of the country has taken a turn for the better due to the concerted efforts of the present government, the press and the electronic media would tend to relay the same message of “all is well” on the economic front. Such an inference could be had by the propaganda of the government in the media about its economic achievements during the last few weeks and a clear signal to the citizens that the process faces a threat of derailment from Pakistan Tehreek-e-Insaf’s (PTI) protracted protest. In any case, while nobody could argue against the priority of this government for economic emancipation of the country, some of the observations made by the Finance Minister on the occasion are either incorrect or only partly true. For instance, it is impossible to imagine that Pakistan could become the second best destination for foreign investment even after a decade or so when the present level of foreign investment is almost insignificant compared to the size of the country or the outflows to other countries. We also don’t know why the government continues to highlight the issuance of Sukuk bonds as a major achievement when it is simply a kind of foreign borrowing at a great cost. Similarly, the observations that the government is committed to ending corruption, ensuring transparency, striving to tackle terrorism and trying to make speedy progress in education, health sectors etc are mere promises and the present dispensation would only deserve credit for such uphill tasks when and if these achievements are visible on the ground for all the analysts to appreciate.

More important though is the lack of progress on certain economic targets that the Finance Minister has not cared to highlight because of obvious reasons. For instance, saving and investment levels continue to be dismal with the result that growth rate is not picking up and would remain stagnant if appropriate policies are not implemented to improve these aggregates significantly. Indebtedness of the country is increasing at a rapid pace, the FRDL Act of 2005 remains violated and efforts to widen and deepen the tax net have not yielded the desired results. A reduction in expenditures incurred on the PM’s House could be symbolic; it won’t make any significant difference on the budgetary outcome. Electricity and gas shortages also continue to persist and there seems to be no improvement in poverty and employment levels. The present political stand-off and growing uncertainty are scaring away investors and promoting brain drain. Inflation is down but largely because of exogenous factors like a decline in oil and international commodity prices. The IMF programme is still intact only due to the grant of several waivers and the sympathetic attitude of the international community. In short, the government has still a long way to go before it puts the economy on a sustainable path of development. Repeated optimistic statements by Dar at various fora could breed a sense of complacency and delay the task of economic stabilisation of the country which the government would certainly not want.