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November 9, 2018

Directionless growth: PTI government working on assumptions of foreign support


November 9, 2018

LAHORE: This government deserves credit for making full efforts to streamline the economy, but there is more talk than substance that is creating confusion. The government’s inexperienced team creates high hopes one day that are dashed quickly.

We need results rather than statements about the state of the economy. At best, this government seems to have averted the immediate foreign exchange crisis, but there is a roadmap for the future. Although, only Saudi Arabia has promised $6 billion –half cash and half supply of oil on deferred payment – not a single dollar has yet been deposited with our central bank.

We badly need infusion of foreign exchange as our reserves are depleting rapidly. As of today, we do not have enough foreign reserves to finance our two months import bill.

Chinese assistance is a puzzle, as the statement by Finance Minister Asad Umar explains nothing. We however should not make fun of the government that at least is making efforts.

The government has opened numerous fronts at the domestic level. It is not on good terms even with the Jamaat-e-Islami that remained its coalition partner in Khyber Pakhtunkhwa for five years.

It failed to benefit from the unqualified support it got from major opposition parties against those agitating against the acquittal of Aasia bibi. One expected the leaders of the ruling party to go soft against opposition until this crisis was resolved. On the economic front, this government in its revised budget announced Rs44 billion in subsidies to provide imported gas to the exporting industries in Punjab; the same rate at which domestic gas is being supplied to industries in other provinces.

This was a major concession to speed up export growth. When this concession was announced, many experts suggested that it be linked to upgrade of technology of spinning and weaving mills. However, the notification for this sanctioned budgeted subsidy was not issued. Now, Aptma leader Gohar Ejaz has informed that Asad Umar has said that the subsidised gas rates were only for the processing units of five exporting industries. If that is so, than the announced subsidy of Rs44 billion is very high, because the processing industries involved in exports hardly consume 30 mmcfd gas which required a subsidy of only Rs4.4 billion per year.

The actual subsidy was calculated on the basis of consumption of 300 mmcfd natural gas, as it included the spinning and weaving sectors. The PTI government is either backing out of its commitment or its calculation was flawed.

In any case, this attitude is a question mark on the competence and commitment of the government. It has lost the trust of the industry. The federal finance minister has admitted that the current arrangements of gathering funds from all sources would ease Pakistan’s immediate balance of payment needs, but that a sustainable solution is to increase exports. The exports unfortunately are not increasing at the required pace. In fact, the increase in our textile exports in the first quarter of this fiscal was only one percent, though overall export increased by four percent.

This brings in to question the wisdom of providing incentives to five exporting sectors only. Why are we neglecting non-traditional export sectors that are growing at 6-8 percent (Textile accounts for 55 percent of exports and rest 45 percent grew at 6-8 percent to take average export growth to 4 percent)?

The revenue growth has been disappointing, as the FBR continues to miss even the budgeted target. At the budgeted target we will be running a fiscal deficit of over Rs1,200 billion.

If targets are missed, the fiscal deficit would correspondingly increase. The devaluation of rupee has increased the foreign debt servicing burden that would further enlarge the deficit. The expected recovery from tainted money would take years to mature. The appeal to overseas Pakistanis for donation in foreign exchange got lukewarm response.

The present government has based its economic recovery on assumptions only. Nothing is clear in black and white.

We will be comfortable for a while if the assumed foreign assistance materialises. This assistance would not be without strings. We expect to move ahead if the corrupt are accounted for, but the government is not sure about its timeline. The process if started now may well materialise in the tenure of the next government.

We expect to raise money through fund raising abroad, but the rulers must realise that you can raise funds for a small project like Shaukat Khannum, not for country of 210 million people.

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