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Mission accomplished? Pakistan’s Economy

GOING by what the government’s spokesman is saying, it would appear the economy has turned a corner and is now poised for sustainable growth.

The emphasis placed by Information Minister Pervaiz Rasheed on the government’s track record in the economy is a little baffling coming on the heels of an announcement by the finance minister that the fiscal framework will need to be adjusted to accommodate a higher budget deficit, and the twin petrol and power crises we have just emerged from.

Also read: Economy rejuvenated by PML-N govt, claims minister

How is this the right time to be reminding everyone of what a stellar job the government has been doing in managing the economy since memories of mismanagement and a near-crisis situation in fuel supply are still fresh?

Nevertheless, now that the minister has played the economy card, it is worth examining the case he has built to substantiate his point.

For one, he says the FBR has collected more revenue this year than the last. But the increase, 12pc, shown in his numbers hardly inspires confidence. Recall that just last week the State Bank said that a 42pc growth rate is required in the second half of the fiscal year to meet the revenue target.

Far from using revenue collection as a yardstick of stellar performance, what the minister needs to explain is why revenue collection has lagged so abysmallay thus far. It is also somewhat strange to use remittances as an indicator of economic performance.

If there is an increase in remittances, it owes entirely to developments that took place prior to the arrival of this government. Inflation has remained contained, and this might have something to do with limited monetisation of the fiscal deficit, although the shift in deficit financing towards bank sources has had other adverse consequences that the minister did not go into.

In every area listed by the information minister, the shine comes off the numbers when examined closely. Reserves had risen, but largely due to borrowings and one-off inflows.

The stock market is no indicator of economic performance. The GDP growth rate has seen some improvement, but in fits and starts. Last year, for instance, a large boost to GDP came as gas provision started idle capacity in fertiliser plants, hardly a turning of the corner as such.

At a time when the government’s team is sitting down with the IMF in Dubai to go over the targets for the release of the next tranche, this statement appears to be an attempt on the part of the minister to set the stage for some positive spin.

But the fiscal framework is under serious stress and exports are continuing to fall, placing a large question mark over the overall state of manufacturing. Surely the government can do better than trying to put a positive spin on the situation.

Published in Dawn, February 3rd, 2015

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