Despite some worrying indicators, our leadership remains steadfastly bullish about the state of the economy. In fact favourable comments in the international media have further boosted their confidence.
The finance minister and virtual economic czar, Ishaq Dar, is doing a lot of chest thumping on the basis of these laudatory comments. The narrative is that if the Wall Street Journal, Bloomberg, PriceWaterhouseCoopers and a variety of other prestigious international outlets shower praise on us, we must believe them, rather than reading the worrisome small print?
The elections — even if held on schedule — are a little over a year away. Resultantly the official narrative has become even more focused on the government’s real or perceived achievements.
A lot of hype is being created around mega power projects nearing completion during the course of the year. That is why the hard working and omnipresent chief minister of Punjab, Shahbaz Sharif, has proudly proclaimed that 2017 will be the year of fulfilling promises.
Undoubtedly the 1,180 megawatts gas fired Bhikki power project will be partly commissioned this month with muchfanfare. Similarly the 1,200 MW Balloki power plant will be commissioned during the year.The 1,320 MW coal fired Sahiwal power project has already started test runs and is expected to be operative in the summers. Not coincidentally all are located in Punjab.
All this would not have been possible without the political will and tenacity of the Sharif brothers at the helm of affairs since the past three and a half years. Undoubtedly Chinese investment and collaboration under the much hyped CPEC (China Pakistan Economic Corridor) has made most of these projects possible.
Notwithstanding the chest thumping, incremental power production solves only part of the problem. Load shedding could have been eased if the government was able to pay the existing private power producers to run their plants to optimum capacity. The problem of circular debt still casts a dark shadow over a seamless and uninterrupted power supply.
A further complicating issue is the structure and state of the antiquated power distribution system. Pakistan had an installed electricity generation capacity in excess of 22,000 MW in 2013, whereas the average demand is 17,000 MW but load shedding continued unabated.
However come what may, during the summers planned power shutdowns are expected to be reduced to two hours a day in Punjab — the heartland of the PML-N. Whatever minimal financial engineering and improvement in the national grid is needed will be done to achieve this target.
Undoubtedly this will be touted as a great achievement of the PML-N government. But this is politics and like other political parties the ruling party has every right to do so aswell. But for how long can hard-nosed decisions be based on politics or self-serving economic mantras?
Ostensibly the economy is far more stable than it was under the PPP government before 2013. A record dip in international oil prices resulting in low inflation has helped the government in painting a rosier picture of the economy. The booming stock market is also taken as an indicator of investors’ confidence in the government’s better economic management.
The danger however lies in a situation where the government starts believing its own rhetoric and expects others to follows suit as well. The only way forward, according to the PML-N, is mega projects like roads, motorways, mass transit systems and coal and gas fired power projects. So far as worrying economic indicators are concerned they will somehow take care of themselves once there is economic growth.
In this atmosphere of ‘mubarak salamat’ (showering excessive praises on each other) even chiding by international donors is conveniently overlooked. For example the World Bank, in its latest overview of the economy, warns that, “a range of governance and business environment indicators suggest that deep improvements in governance are needed to unleash Pakistan’s economic potential”. Of course the key words in the denouement are ‘governance’ and ‘potential.’
Unfortunately the government has failed on both the counts. If it were not so, the present trend of perennially low GDP growth hovering around less than five per cent and continued decline in exports could have been somewhat reversed.
It is claimed that the fall in international commodity prices has been the bane of Pakistan’s exports. Recently the government announced a generous textile industry package. However other things remaining the same, in the short run, this is unlikely to revive the sector, thereby boosting exports of textile products.
Similarly FDI (foreign direct investment) continues to remain dismal owing to multifarious reasons. According to the World Bank, Pakistan ranks as low as 144 in the pecking order. There is a marginal improvement from the previous years, but not enough to boost foreign investment.
Apart from factors like terrorism, bureaucratic impediments, an outdated taxation system and the general lack of ease of doing business inhibits foreign investment. While we still wallow in our misplaced priorities, erstwhile centrally controlled economies like China and Vietnam have done away with communist era red tape to attract foreign investment. Even Bangladesh, termed decades ago as an international basket case, has outstripped Pakistan in terms of exports.
There are some extremely worrisome indicators that our economic managers are sweeping under the carpet for the sake of expediency. Take the case of alarming rise in foreign debt.
Sakib Sherani, an eminent economist, in a recent article quoting State Bank data says that the present government has accumulated “an unprecedented amount of both external and domestic debt, contracting $34.6 billion of new foreign loans”. According to him the cumulative public debt has increased from around Rs14,600 billion on 30 June 2013 to Rs20,272 billion as of December last year. An increase of 40 per cent, he contends.
Of course the mantra is to win the next general elections, no matter what. Does it not matter if the nation is mired in enormous debt in the process? That is why some experts contend Pakistan will have to negotiate another IMF program for macroeconomic stability.
Of course perhaps our economic mangers cynically calculate that this will be done post-2018 elections. If the PML-N government wins it will engage in some spin doctoring through its apologists in the media. If it is in the opposition whomsoever in power will be blamed for ‘mishandling the economy’.
Despite claims to the contrary, economic indicators tell a dismal story. Pakistan has in fact slipped in the UN Human Development Index from 119th to 147th. Historically with insufficient budgetary outlays in the social sector (especially on education and health) and misplaced priorities, this is not surprising.
The country’s multifarious problems, including rampant terrorism, large budgetary outlays on defence and debt servicing and lack of political will to reform, will continue to haunt it. In the meanwhile our ruling elites will continue to be prisoners of their self-serving rhetoric and jaundiced vision.