Imran Khan jumped the gun. This time, over Pakistan’s economic turnaround
- Pakistan's GDP growth had slowed down much before the coronavirus outbreak, growing by 1.9% in 2019 as compared to a decade-high of 5.8% the previous year when Imran Khan's Pakistan Tehreek-e-Insaf came to power.
Prime Minister Imran Khan’s government often pins the blame for the economic turmoil in Pakistan on his predecessors and coronavirus, in that order, and credits PM Khan for minimising the adverse impact of both. PM Khan and his government’s economists have lately been telling Pakistanis and the world about his government’s success in navigating the economy.
In November, Imran Khan told a meeting with political leaders and civil society that the difficult phase in the economic revival is over and the economy has recovered. The next month, PM Khan declared that Pakistan’s economy had made a “remarkable turnaround”.
To be sure, the pandemic did play a key role in ramming Pakistan's economy that contracted for the first time in seven decades. But the downward trend had been evident as early as mid-2018. Pakistan's GDP grew by 1.9% in 2019, down from a decade-high of 5.8% the previous year when Imran Khan's Pakistan Tehreek-e-Insaf came to power.
Pakistan watchers in New Delhi suggest PM Khan’s proclamation on the economy may have jumped the gun.
Not everyone in Pakistan outside the government is as convinced either. Like this opinion piece in the Dawn. “Whenever you hear the government proclaim triumph about rising exports, keep in mind that the trade deficit has grown even faster than exports in the same July to December period,” commentator Khurram Husain cautioned on the government’s spin to the data on PM Khan’s claims of economic recovery.
Besides, Pakistan is also struggling to contain inflation that shot up to 10.7% in 2020, up from 6.8% in 2019 and 4.7% in 2018 when the Imran Khan government came to power. A recent spike in food prices indicates that the rising trend is likely to continue.
Pakistan, in a desperate effort to contain food prices, ended up aggressively importing essentials like wheat, sugar and canola to such an extent that, according to a Bloomberg report earlier this month, the Karachi Port was jammed.
“The result: Pakistan’s cement exports declined 18% to 633,431 tons last month, steeper than the 5% drop seen in November, amid non-availability of berths to load the goods,” the Bloomberg report said.
The economy is also under strain due to rising debt stocks. By the end of September 2020, Pakistan's total debt and liabilities stood at Pakistani Rupee 44,801 billion ($280 billion), an increase of PKR 245 billion over a three-month period.
Moreover, around 30% of Pakistan's total debt is sourced through external borrowings and reflects an increase of $ 1.05 billion during the July-September quarter of the current fiscal. Pakistan would need to pay around PKR 1,200 billion towards servicing the debt and liabilities in the current fiscal.
Currently, Pakistan spends around one-third of the total budget on debt servicing. PM Khan admitted the impact of the debt burden recently even if it was to blame his predecessors. “Half of the taxes we [the government] collect go into debt settlement of loans taken by previous governments,” he told reporters this month.
Quite a bit of PM Imran Khan’s attempt to build the narrative around Pakistan’s economic turnaround has focused on the current account that had been in surplus for around five months till December, a rarity in a country dependent on imports and stagnant exports. PM Khan had, for weeks, lauded the current account surplus as “great news” and spoke about the ‘achievement’ with some pride last week too.
Economists have, however, pointed that the current account surplus was possibly one positive consequence of the Covid-19 pandemic that had slowed down economic activity and led to a decline in the demand for fuel in an era of low global oil prices. It also helped that travel restrictions around the world had impeded the flow of remittances via the informal channels and forced workers abroad to use the formal remittance channels.
But it is time for Pakistan to tighten its belt as it looks to revive the International Monetary Fund’s $6 billion Extended Fund Facility (EFF). It was stalled in February 2020 after the Covid-19 outbreak that gave PM Khan the space to put off hard decisions.
The first one came on Thursday when the government announced plans to increase the power tariff by Rs1.95 a unit. Local media reports have indicated that the government could soon also withdraw PKR 150 billion worth of tax exemption to the corporate sector.
PM Khan did not refer to the corporate income tax rates and exemptions at the launch of a digital payments system 'Raast' earlier this month. But he did hint at the need to expand the tax base. Out of 220 million people in Pakistan, income tax paid by 3,000 people accounted for 70% of the collections, he said.
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