ISLAMABAD         -          Independent economists have negated the tall claims of the incumbent government to achieve economic stabilization by saying that people had paid the price of so-called stabilization in the form of high interest rate, massive currency devaluation and unprecedented taxation measures.

Top officials of the government recently claimed to achieve the economic stabilization. They believed that economic policies of the government had helped in controlling the current account deficit, building foreign exchange reserves and reducing the budget deficit. However, the independent economists said that government had failed to address the basic issues of the economy like increasing exports, revenues and controlling inflation and generating employment opportunities.

Eminent economist Qaiser Bangali said that government’s claims of achieving growth after stabilization is baseless. “The government is distorting the economic figures to show its achievements, which had not happened in real,” he said while talking to The Nation. He has criticized the government’s policy of controlling the current account deficit by reducing necessary imports. He informed that government has reduced the imports of raw materials and petroleum products, which resulted in closure of imports. “The government should have ban unnecessary imports like food commodities whose alternative are available in the form of domestic production”.

Former secretary finance Dr Waqar Masood said that government had achieved the stabilization after increasing the interest rate to 13.25 percent and unprecedented devaluation to rein-in the excess aggregate demand. On fiscal policy side, the government had introduced new taxes worth of Rs750 billion in the budget.  Imports are already down by $11 billion since July 2018, with exports rising by a paltry $300 million. The loss of imports has led to a massive slow-down in industrial production, with reduction in growth in large-scale industry. “Thus, stability was achieved at the cost of something that is akin to breaking the fever via an antibiotic which in the process has left no energy in the body,” Dr Waqar has said in his article.

He said peoples’ incomes declining and demand cut down significantly. The inflationary spiral is also unprecedented. Food inflation is the main driver despite some respite in several food prices. “The tax collection performance (16 percent growth) is definitely better than last year but nowhere close to the target of 45 percent or even with the reduced target by the IMF. The department is lamenting that it has faced a nearly Rs500 billion shortfall in revenue because of loss of imports,” he explained.

Another economist, who is part of the government’s Economic Advisory Council, has also criticized the economic policies. The incumbent government had failed to address the key issue like increasing exports and revenues and reducing inflation. “The government had achieved only 16 percent growth in tax collection in six months of the current fiscal year, which is due to 12 percent inflation rate and 3 percent GDP growth. So, there is no role of government in enhancing the revenues. Similarly, the exports had increased by around four percent, which is due to massive depreciation of currency,” he explained, wishing not to be named.  He said that government’s policies including devaluing the currency, increasing interest rate and enhancing power and gas prices had resulted in higher inflation rate.

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On the other hand, the Ministry of Finance has said that the government inherited an economy in a major balance of payment crisis which led to high inflation and low growth but immediate actions by the government helped stabilize the economy and reduce the unsustainable fiscal and trade deficits, leading to restoration of business confidence.  In a statement, the Finance Division said that the success of the measures taken by the government to restore and further improve the business confidence was evident in the performance indicators which had significantly improved on many fronts. The statement said the improvement in the business environment could be gauged by the fact that Moody’s Investors Services had upgraded Pakistan’s outlook from ‘negative’ to ‘stable’ in December 2019, reaffirming the country’s rating of B3, whereas in June 2018, Moodys had downgraded outlook to ‘negative’.

Similarly, Pakistan’s ranking in the Ease of Doing index had also moved higher by 28 points (108/190) while the World Bank ranked Pakistan among the Top 10 reformers in 2019. Likewise, Bloomberg had showcased Pakistan Stock Exchange as the top performing market in the world in the last three months. PSX benchmark KSE 100-share Index gained 50% in dollar terms since August 2019.

The statement by the Finance Division also mentioned the remittances which had increased by 3 per cent to US$ 11.4 billion during Jul-Dec period as against $11 billion in the corresponding period last year. Similarly, after 4 years of outflow, net portfolio investment had gone up to $1.4 billion during the Jul-Dec FY20 while it was $ 330 million in the same period last year. Besides, FDI during Jul-Nov FY20 had increased by 78 per cent to $ 850 million as against $477 million in the same period last year.

Among the other indicators, exports had increased by 4 per cent to $12.3 billion in the Jul-Dec 2019 period as against $11.9 billion in the same period last year. The imports had decreased by 21% to $22 billion in Jul-Dec period as against $28 billion imports in the same period last year. Current Account Deficit during the Jul-Nov 2019 period had declined by 73% to $1.8 billion (1.6% of GDP) compared to $ 6.7 billion (5.3% GDP) in the same period last year. SBP FX Reserves had increase to $11.5 billion in the Dec 2019 from $ 7.2 billion in June 2019. Increase in SBP FX reserves was marked after debt repayments of $ 5.3bn in Jul-Nov period, including $ 2.7 billion in interest payments and $ 2.6 billion in repayment of maturing debt.