The past few days have seen SBP raise policy rate by 50bp 1.e 10.75% and March inflation coming in at 9.4%. But SBPs tone looks worried pointing out elevated levels of inflation, high current account and fiscal deficit and higher M2 growth. Given the present scenario interest rates may inch up further. Current account deficit may narrow down and inflation may start dropping at the beginning of 2020.
But fiscal balance is the main area to worry in 2019.
Total revenues were down 2.4% YoY in 1HFY19. Taxes which make up 85-90% of total revenues were marginally up, collections through import duties and other charges dragged down overall revenues given economic slowdown. Overall 1HFY19 expenditure was up 5.5% YoY due to mark-up payments (+16.7% YoY) and defense (+22% YoY). Both aspects have widened the budget deficit by PKR 234bn (+29% YoY) in 1HFY19 alone.
Earlier last two governments have given an ambitious 10-year plan called Vision 2025, envisaging Pakistan to be among top 25 world economies, universal primary education with 100 per cent enrolment, an increase in annual exports by six times to $150 billion and double power generation to 45,000MW by 2025.
The plan is based on seven key pillars. The vision has positioned human resource development at the top of national agenda by capitalizing on existing social capital, strengthening it and improving the human skill base of the population to optimally contribute to and effectively benefit from economic growth.
Under pillar one it promises that a larger share of the GDP, at least 4pc to education and at least 3pc to health, would have to be allotted to achieve universal primary education with 100pc net primary enrolment, increase higher education coverage from 7pc to 12pc and increase proportion of population with access to improved sanitation from 38pc to 90pc.
Under pillar two for sustained, indigenous and inclusive growth, the plan promises to make every Pakistani better off by 2025 by removing a lot of existing horizontal and vertical, intra- and inter-provincial, as well as rural and urban inequalities.
The key goals in this case include a modern performance driven public sector, transforming Pakistan into one of the 25 largest economies in the world, leading to upper-middle income country status and increasing annual exports from $25bn to $150bn.
Under pillar three for a responsive, inclusive and transparent system of governance at all levels, from federal to provincial and district levels, will ensure an efficient and transparent government operating under the rule of law and providing security of life and property to its people.
Pillar four promises sufficient energy, water and food security for sustainable economic growth and development. It plans to double power generation to 45,000MW and provide uninterrupted, affordable and clean ‘energy to all’. It also seeks to increase storage capacity and improve efficiency of usage in agriculture by 20pc and reduce food insecure population from 60pc to 30pc by 2025.
The pillar five – private sector led growth and entre-preneurship – aims to make Pakistan a highly attractive destination for private sector investment, with conditions that allow private investors to successfully participate in its development.
The target is to rank Pakistan in the top 50 countries on the World Bank’s Ease of Doing Business Rankings and increase Diaspora investment (via remittances) in private sector to $40bn.
Pillar six seeks to increase competitive knowledge and value-addition to utilize resources in a productive manner – based on merit, quality and innovation, instead of unproductive rent seeking behaviors. Key targets would be to quadruple contribution of total factor productivity to growth and improve Pakistan’s score on the World Bank Institute’s Knowledge Economy Index from 2.2 to 4.0.
Pillar seven seeks modernization of transportation infrastructure, greater regional connectivity.
Every vision requires some implementation structure. In this case paramount remains continuity of democratic structure, Independence of judiciary and media, and democratic structure from top to bottom, i.e. Senate, National Assembly, Provincial Assemblies, Local Bodies with all institutions beurcaracy and military working within their ambit.
But whether Pakistan is on track to achiev these goals is a question in April 2019. Government is considering to present the budget for the next fiscal year 2019-20 on May 24. After attending a ceremony of the State Bank of Pakistan, Assad Umar admitted that the rise in the inflation rate is due to the steps the government has taken for the ‘economic stability of the country’. The IMF mission would visit Pakistan within this month to finalize the loan package. Loan from the IMF package would be small but it would put positive impact on dealing with other multilateral sources. Talking about shortfall in tax collection, he said the government is facing shortfall due to the reduction in imports, reduced sales tax on oil prices and Supreme Court decision of withdrawal of taxes on mobile phone cards. The Finance Minister said that the government was determined to transform the country into a knowledge-based economy by making IT one of the top contributors in Pakistan’s economy and job creation besides producing world-class knowledge workers in sync with international market trends.
But how? The perception stands otherwise due to faulty decisions by SBP and MOF. Going late to IMF, raising interest rate by SBP, allowing depreciation of PKR have damaged doing business in Pakistan. Here first of all changes are needed for bringing high ups of MOF and SBP with better people who do have the courage and skills to better plan and then prepare road map to implement them.
|Economic Indicators of Pakistan 2017-2020|
|Real GDP growth in % basic prices||5.4||5.8||4.0||3.0-4.0|
|Saving Investment GAP as % of GDP||-4.1||-4.9||-5.0||-5.0|
|CPI i.e. inflation change in % on YOY basis||3.8||6.5||8.5-10||9|
|SBP net liquid reserves $ in billions||16||12||9||10|
|Exports % of GDP||7.2||7.9||8.2||9.0|
|Imports % of GDP||16||18||17||17|
|FDI % of GDP||0.9||1.0||0,9||0.9|
|Tax Revenue growth in %||12.5||16.4||19.2||20|
|Non Tax Revenue growth in %||-21.4||43.4||-31||21|
|Current Expenditure growth YOY in %||12.5||13.5||17.3||18.0|
|Development Expenditure growth YOY in %||-3.5||17.5||11.3||12.0|
|Total debt and liabilities as % of GDP
|Private sector credit to GDP ratio (percent)
|PKR against One US$||108||121||150||170|
|PSE 100 index||46,565||40,911||38,329||–|
|Advances to Deposit Ratio Banks||50.1||53.1||55.8||–|
|· *Figures from SBP