Lahore - Increase in forex reserves is the result of high cost debt of about $5 billion and not the result of higher exports or increase in private capital flows. In fact, exports have declined by 12 per cent in the last two months. Foreign Direct Investment has fallen to its lowest level in ten years. Of late, there has been an exodus of portfolio money from Pakistan.

This was expressed in the a fact sheet issued by the Institute for Policy Reforms written Dr. Hafiz Pasha who finds factual inaccuracies and over enthusiasm expressed Jeffrey Franks, the former IMF Mission Chief for Pakistan.  “An IMF programme usually helps build confidence among foreign investors and corrects exchange rate for export growth. Both seem to be absent,” the Fact Sheet observed. The applause by the former IMF Mission Chief for decline in inflation belies its real cause, which is driven by a steep fall in the price of oil and other commodities in the world market. Core inflation in Pakistan remains at a relatively high 6%, which shows no correction in fundamentals. Pakistan has followed IMF’s advice on monetary policy. However, this has crowded out private investment. Compared to the same period last year, private credit has declined by 36% while GOP’s bank borrowing grew by more than four times to a ‘record level of Rs. 1214 Billion, the Fact Sheet stated.

Mr. Franks finds comfort in the half percentage point increase in the tax to GDP ratio from 2012-13. He compares this year’s performance with an election year when the government granted a number of concessions. The present ratio is the same as that of fiscal 2011-12. In fact, IPR is concerned about tax revenues.

Government has revised down the revenue target this year from Rs. 2810 Billion to 2691 billion. All indications are that it will be no higher than Rs. 2560 billion this year. The overall revenue to GDP ratio would likely decline by 1% of GDP because of lower non-tax collections.  His eulogy for energy reforms may perhaps rub salt in the wounds of most Pakistanis. His appreciation for reduced subsidy ignores the unpaid amount of circular debt. When paid, subsidy will increase immediately. If not paid, the sector will continue to underperform. Mr. Franks’ claim that revenue losses have declined is factually incorrect. At 18.5% transmission and distribution loss are the same, if not worse, than the year before. Billing losses, in fact, have increased by one percentage point to 11%. Arrears from consumers have increased to Rs. 513 Billion, an almost 25% increase from last year.

His praise for the privatization programme seems misplaced. Rather than restructure and privatize loss-making companies, GOP has taken the easy path of selling its shares in profit making firms. Mr. Franks’ also finds that reforms will make Pakistan business friendly. In the World Bank’s ‘Ease of Doing Business Index’, Pakistan’s rank has dropped from 110 in 2013 to 128 in 2014 out of 188. In these two categories, its position worsened from the year before.