Published in The Nation newspaper on 18-Mar-2013
ISLAMABAD - The fragile Pakistan’s economy remains tottering during the five years constitutional tenure of the PPP-led coalition government, as the financial managers futilely attempted to bridge the yawning budget deficit year-after-year. However, they remained successful in doubling the country’s public debt.
The beleaguered government has several times changed its economic team to overcome the financial challenges during its five-year tenure, as it replaced five finance ministers, four governors of the State Bank of Pakistan, five finance secretaries, and six heads of the Federal Board of Revenue. None of the economic team performed well, as public debt surged to a record level and other macroeconomic indicators remained on the lowest ebb.
The last five years have seen economic growth slowing to an average of three percent per annum, industrial growth stagnating at near zero percent, investment rate declining to a 50-year low at 12.5 percent of GDP, budget deficit averaging seven percent of GDP and public debt doubling.
The economic experts termed the government policies as complete failure in last five years.
Sartaj Aziz, a recognised economist and former finance minister said that key factors that affected all sectors of the economy are poor governance and corruption in the country. He noted that the most serious issue persisted was the lower economic growth that remained at three percent on average in last five years (2008-2013) as compare to six percent of the preceding five years (2002-2007). The level of people living below poverty line has increased to 40 percent during previous five year from 30 percent of its preceding five years.
“One of another most important negative factor is decline in investment to GDP ratio from 20pc to 13pc, which is the one of the root cause of the slowdown in GDP growth”, said Sartaj Aziz. The fiscal deficit remained at above seven percent of the GDP at average in last five years compared to four percent of the GDP agreed with the IMF in 2008. He further said that consequent of the higher fiscal deficit combined with lower growth is the high inflation rate, which has been in doubled digits from last five to six years.
Another most significant failure of the government is ‘energy crisis’ that has not only affected the rate of industrial growth but also brought the miseries of the common people, he informed. Sartaj Aziz further said that balance of the payment situation is also getting under stress, as the foreign exchange reserves have declined to $8 billion i.e. two months of imports. Only remittances have shown growth in last five years.
Terming the economic policies of the government as “total failure”, former State Minister for Finance and Economic Affairs Umer Ayub Khan said that government has shown lack of interest in resolving economic issues of the country. The public debt has surged to Rs 15 trillion in 2013 as compare to Rs 4.5 trillion of 2007. The country is facing Rs 1200 to Rs 1400 billion loss annually in term of revenue collection due to ongoing energy crisis that was created artificially in order to introduce rental power plants, said Umer Ayub Khan.
Khan further said that debt has increased by Rs two trillion only due to the rupee depreciation against the US dollar, as its value went down to Rs100 in 2013 as compare to Rs 60 of 2007. Similarly, the foreign direct investment remained at lowest ebb during the five years of the incumbent government. Former State Minister for Finance and Economic Affairs noted that food inflation increases manifold, budget deficit has gone up, economic growth remained at the lowest side during the five years tenure of PPP-led coalition government.
Never in the history of this country has the nation seen such a fiscally irresponsible government. “Pakistan’s economic situation was never so bad in 65 years, as it was in last five years. Country’s economic growth at average remained at lower side of three percent; unemployment increases resulting in higher poverty rate”, said Dr Ashfaque Hasan Khan, an eminent economist while talking to The Nation. He further said that budget deficit remained at higher side and public debt surged to Rs 13 trillion in 2013 from Rs 5 trillion of 2008. Interest payment increased due to hike in public debt, as country spent Rs 1200 billion on interest payment in last year, which is almost 56 percent of the tax collection of the country. Similarly, Dr Khan said that country’s reserves are sharply declining as State Bank of Pakistan held reserves are at $7.8 billion from which country would repay $6.5 billion till December 2013.
Dr Ashfaque further said that industry has been relocated to other countries mainly due to power crisis and law and order situation of the country.
Dr Usman Mustafa, economist from Pakistan Institute of Development Economics (PIDE), termed the twin deficits (fiscal and trade) as major problems faced by the outgoing government. He further said that government took huge foreign loans in its five years tenure but it was not appropriately utilised. The government spent huge amount on Benazir Income Support Programme (BISP), which should be spent on creating new jobs.
Dr Usman noted that unemployment, inflation and poverty increased in last five years. However, he termed the announcement of National Finance Commission (NFC) award a biggest achievement of the government.
The economic situation remained worse during the period under review.
Pakistan’s total public debt was doubled in last five years mainly due to low revenue collection and sharp decline in rupee value against the US dollar. Pakistan’s public debt has touched a record level of Rs13.2 trillion on September 30, 2012, which was only around Rs 5.5 trillion when the incumbent government took the charge in 2008.
Rupee depreciation against US dollar
Pakistani rupee sharply depreciated against the US dollar by over 66 per cent in five years tenure of the incumbent government. Pakistani rupee remained under severe pressure against the US dollar in the period under review, as it hit a record low level of around 100 in February 2013 against the level of 60 in 2008.
Country’s budget deficit remained high in last five years mainly due to low revenue collection and lavish expenditure of the government. The government never met the revised target of budget deficit in period under review. Federal Board of Revenue (FBR) in last five years failed to achieve the revenue collection targets set by the government leading to increase the budget deficit of the country. The deficit recorded at Rs 680.41 billion (5.2 per cent of the GDP) during the fiscal year 2008-09 and at Rs 929 billion (6.3 per cent of the GDP) during financial year 2009-10. The budget deficit recorded at 6.6 per cent of the GDP in fiscal year 2010-11 and at Rs 1,389 billion during the last financial year 2011-12. The budget deficit might reach to Rs 2 trillion during the ongoing financial year 2012-13.
Country’s foreign exchange reserves remained under severe pressure in 2012 as they were in 2008 when the government took charge and approached IMF on that time for standby loan programme. The country’s foreign exchange reserves are on the depleting side due to heavy repayment to IMF since February 2012. The government has no other option than to approach IMF in next few months, as it feared that reserves might come down to less than $10 billion by June 2013 from existing $12 billion.
Prices of essential
Despite tall claims of the government that inflation rate went down, the prices of basic essential food items went up in 2013 as compared to the prices of 2008. Price of one of the basic food item wheat flour (atta) increased to Rs 38 per kg in 2013 from Rs 18 per kg in 2008. Rate of Basmati rice (broken) witnessed an upward surge to Rs 80 in 2013 from Rs 37 in 2008. Price of moong pulse (washed) surged to Rs 135 per kg in 2013 from Rs 53 per kg. Mash pulse price (washed) soared to Rs 160 per kg in 2013 from Rs 70 per kg in 2008. Similarly, sugar price increased to Rs 60 per kg in 2013 from Rs 28 per kg in 2008. Mutton price touch the mark of Rs 570 per kg in 2013 from Rs 240 per kg in 2008. Meanwhile, beef price surged to Rs 280 per kg in 2013 from Rs 130 per kg in 2008. In the same way, prices of vegetables and fruits also increased in the period under review.
subsidy and losses
The government also failed to reduce the long hours power outages despite provision of huge subsidy of around Rs 1.5 trillion in five years mainly due to the inefficiency and mismanagement in the power sector. Power subsidy could not improve the electricity situation in the country and the crisis is posing a serious threat to the budget deficit target and economic stability in the wake of massive subsidies. The government at present is providing Rs 30 billion (on average) subsidy to the power sector. Loadshedding is causing 2 per cent GDP loss per annum while the impact on revenue generation is around Rs52 billion. On the other hand, the government was unable to make any progress to recover power sector dues worth Rs 480 billion from different institutes including federal, provincial, autonomous bodies and private departments that has worsened the power crisis of the country.
The country’s public sector enterprises such as Pakistan International Airlines, Pakistan Steel Mills and Pakistan Railways are ailing due to mismanagement and blatant inefficiencies in last five years and so. The government has reportedly violated the rules in hiring the staff/officials in public sector entities and more than required staff was recruited in PSEs leading to huge financial losses.
Pakistan Steel Mills
The profitable public sector entity - Pakistan Steel Mills in 2008 - is now facing losses worth Rs 71 billion in 2012. The PSM faced financial loss of Rs 25.52 billion during the first fiscal year of the incumbent government i.e. 2008-9, Rs 11.56 billion in 2009-10, Rs 12.43 billion in 2010-11 and Rs 21.43 billion in 2011-12.
Pakistan International Airlines
Financial the PIA is in a sad state of affairs as total borrowing touched Rs157.165 billion till November 30, 2012 against Rs 42.5 billion in 2008 when the government took charge. Hundreds of unnecessary recruitments were made in PIA on political basis that could be gauged by the fact that there were 600 pilots for 26 aeroplanes - 23 pilots for one plane. Similarly, it was confirmed that PIA’s per aircraft human strength is 482 people whereas in a private airline there are only 125 people staff per aircraft.
Pakistan Railways suffered a loss of Rs 40 billion during the last four years since the incumbent government took charge in 2008. Total losses of Pakistan Railways were around Rs 17 billion when the government came into power in 2008.
Country’s exports and remittances, however, have shown healthy growth during the last four and half years. Country’s exports have increased to $24 billion in 2012 from $18 billion in 2008. Similarly, country’s remittances have increased to $13 billion in 2012. Remittances of $47 billion were recorded in last five years.
Published in The Nation newspaper on 18-Mar-2013