MISSING MOST OF THE TARGETS
ABSENCE OF POLITICAL WILL TO TAKE DIFFICULT DECISIONS AND HABIT OF SWEEPING THE ISSUES UNDER THE CARPET ARE ADDING TO THE ECONOMIC WOES.
SHABBIR H. KAZMI
June 4 - 10, 2012
Going through the recently released Economic Survey 2011-12 gives mixed feeling but a lot depends on the mindset of the reader. The critics term the year a bad one but unsurprisingly those believing in 'glass is half filled' look at the positives. Global downturn is still far from over and many of the economies termed 'stronger than Pakistan' are also facing a bumpy drive. India, often termed regional super power, is also experiencing lower GDP growth rate and erosion in its currency value. Many of the European countries face precarious situation and are seeking support of the International Monetary Fund (IMF). Therefore, those saying 'Pakistan missed most of the economic targets' must not forget that being part of 'war on terror' has crippled its economy the most.
If it is a saga of missing most of the targets set at the time of announcement of budget in 2011, one must not ignore subsequent events. However, the most disappointing fact is that little was done to overcome the challenges. In fact, gross economic mismanagement plunged the country deeper into the mess.
Energy crisis remained the most contentious issue, despite all and sundry knowing it being the outcome of gross mismanagement, corruption and even patronizing inefficiencies. Throughout the year, average capacity utilization of power plants remained low because of a policy of saving fuel without giving much attention to the key issues, rampant theft, and mounting receivables.
In a nutshell, economic wellbeing measured by GDP growth rate remained far from satisfactory, as the country achieved mere 3.7 per cent growth against a target of 4.2 per cent. However, this has been termed better than three per cent growth witnessed the year before. One of the rationalizations is that the country suffered from the worst deluge in 2010 and also in 2011, though of lesser magnitude. Agriculture growth was at target and menace of inflation remained manageable.
Some critics say that the economic story of the missed targets is not as simple as being narrated by finance minister Dr Abdul Hafeez Shaikh. Minister usually starts his narrative with higher international oil and commodity prices, poor security situation, natural disasters, global economic crisis, and negative perception of investors about Pakistan. His argument is that under the prevailing conditions, economic performance is not as bad as being termed by the critics. He claims that over the last three years, there has been consecutive improvement but also concedes that this is not enough. He admits that people are suffering due to higher rate of inflation, which is cost-push.
He claims that the government has been working hard to overcome shortage of energy products and persistent hike in the tariffs. He also accepts that the government has not been able to resolve the issue despite paying over Rs1.2 trillion subsidies in more than four years. One completely disagrees with his rationalization that the issue is not of energy shortage but affordability and the readiness of the consumers to pay the real price of energy. However, it is true if consumers indulge in rampant theft and also don't pay the bills, utilities will not be able to run the power plants at optimum capacities.
The survey put the fiscal deficit in the first nine months of the current year at 4.3 per cent against a target of four per cent. The report said that the projection for fiscal deficit had been revised to 4.7 per cent - the inflated figure was estimated to account for envisaged surpluses from provincial governments, the non-tax revenues, which depend on inflows into the coalition support fund and strict control over expenditures. Interestingly, the power sector expenses had not been included in the deficit. If one adds the figure to get to know the actual figure, the deficit would be a whopping 6.85 per cent of GDP.
The three key sectors agriculture, manufacturing, and construction performed better as compared to the previous year, despite the fact that all of these failed in achieving the targets. Agriculture sector posted a growth of 3.1 per cent against a target of 3.4 per cent that was still an improvement over 2.4 per cent growth achieved in the preceding year. Manufacturing sector grew by 3.6 per cent close the target of 3.7 per cent. Large-scale manufacturing grew by 1.1 per cent, which is an improvement over the one per cent growth of last year though it fell short of the target of two per cent. The construction sector registered growth of 6.5 per cent against a decline of 7.1 per cent witnessed last year. Services sector grew by four per cent missing the target of five per cent. The sector had also done better in the last fiscal year when it grew by 4.1 per cent.
The tax to GDP ratio is expected to improve with revenue collection in the first 10 months increasing by 25 per cent. The increased tax collection has the capacity to reduce reliance on international funding. However, the most contentious issue is that while middle and lower income groups are paying taxes through their noses, the elites, feudal lords and powerful groups are not ready to pay their fair share of dues. The minister must accept that this is happening because of poor regulatory framework and also helpless tax collectors of the rural areas. It must be kept in mind that according to the law of land, income from agriculture is also taxable but provincial tax collection agencies have completely failed in catching the big fish, maybe because most of them are sitting in national and provincial assembles and senate or have access to power corridors.
Budget deficit is there because of Pakistan's involvement in proxy war being fought in Afghanistan and even within Pakistani borders. However, the most recent phenomenon is talks of fragmentation of Pakistan getting louder. Security forces can fight an obvious enemy but taking action against embedded enemies who have created human shields is not easy. Ironically, ruling regime and opposition have failed in developing consensus when it comes to negotiating with the United States and even India.