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Economy-What Are the Real Facts?


Muhammad Arif : Chairman Centre of Advisory Services for Islamic Banking and Finance (CAIF), Former Head of FSCD SBP, Former Head of Research ArifHabib Investments and Member IFSB Task Force for development of Islamic Money Market, Former Member of Access to Justice Fund Supreme Court of Pakistan

For every public problem, PTI government has the same answer that they are occurring due to PML N and PPP governments and if somebody raise any objection than NAB is there. If questions come from Media than answer is don’t read the newspapers and don’t see the TV. If Atta and Sugar gets short due to exports by PTI government, than they blame some mafias that have not been named. For increase in Public Debt and Circular Debt the answer is they are increasing also due to previous governments. They advice that be patient, get ready for sacrifices and 100% believe on government what it says, even if it says that Japan and Germany are neighbor countries and Turkey has ruled over India for 600 years and to get or for seeing hoors injections are available.

However apart from this non serious discussion, Special Adviser to the Prime Minister on Finance Dr Abdul Hafeez Shaikh while speaking in the parliament admitted that like previous governments we have gone to the IMF and we should be proud of Reza Baqir Governor SBP who has come from the IMF. He further said that from IMF we first of all got financing of $6 billion based on easier conditions. The second point, he said, was that the whole world was reassured that Pakistan was ready to operate with “discipline” and ready for partnerships with other parts of the world. “The direct advantage of this is that other countries and other international organizations including World Bank and Asian Development Bank also increased their support for Pakistan.”

Summarizing the situation that was steering the government, the premier’s special assistant said there was a loan of Rs 95bn, Rs 5,000 bn to be returned in the next two years. Further now highest current account deficit in Pakistan’s history had nosedived with reserves going upward with betterment in the fiscal deficit.

Shaikh said that over the past five years the rate of growth in exports was zero. He said that other concerns were the slow rate of development in agriculture as well as the electricity sector.”We as a country have been unsuccessful in solving this problem and what manifests this is the circular debt.”He said that one of the things that were required was to reduce expenses.

“This government has taken some decisions which are historic,” he said, adding that one big decision that was taken was to freeze the budget of the Pakistan Army. The premier’s special assistant added that the civilian government’s budget was also reduced by Rs40 billion.

Additionally, he said that borrowing from the SBP over the past seven months was at zero, as they had decided not to borrow from the State Bank because such borrowing tends to be inflationary.

“After a zero per cent growth in five years, in the first seven months exports grew,” Shaikh said, adding that this had occurred at a time when countries like Bangladesh and Vietnam had also been unsuccessful in increasing exports.

Coming to revenues collected by the government, the adviser on finance said non-tax revenue had been increased by 170pc. He added that the target of non-tax revenue was Rs1, 100bn, however, he said that it would Rs1, 500bn. Sheikh shared that the exchange rate also appeared to be at a stable level.

Economic Data
  FY 2018

PML N era

FY 2019

PTI era

FY 2020 (Jul-Dec) PTI era
Real GDP growth Market Price % 5.8 3.3 3.0 (Some say 1.9)
Inflation YOY in % increase 4.7 8.4 14.6
SBP discount rate in % 6.0 8.50 13.25
Current A/C in billion $ -20 -14 -2
Capital A/C in million$ 376 245 208
Workers remittance in billion $ 20 22 13.3
Exports in billion $ 28 24 12
imports in billion $ 57 53 23
Private sector borrowings in billion Rs 775 694 175
$/PKR Exchange rate 121.4 158.5 154.56
Domestic Debt in billion RS 4,653 12,080 13,196
External Debt in million $ 76340 83,936 84518
FX Reserves in billion $ 16.3 15.1 18.7
Revenue govt Rs in trillions 5.2 4.9 2.0
Expenditure Rs in trillions 7.4 8.3 3.5
Deficit Rs in trillion 2.2 3.4 1.5

Apart from what Hafeez Shaikh has said, now we come to actual facts where results are looking horrible for the common man. No doubt deficit of Current account has shrunk and Fx Reserves have improved mainly on SBP side due to oncoming external debt and investment in government securities. But all this would be a short term phenomenon. So medium and long term policies are required with improvement in revenue by taking all stakeholders in to confidence and by filtering FBR by shunting corrupt elements.

But the main culprits of the economy are inflation rate and SBP discount rate with downward GDP growth rate pushing poverty to further aggravate, closing businesses and increasing unemployment. Its solution is very simple i.e. to revive and accelerate business activities by making funds available to the business entities at moderate rates.

Can government do this? We think it can do this as it has gone to the IMF instead of Imran Khan Claim that he would accept death instead of going to IMF. Now when government has gone to the IMF and by the grace of God Imran Khan is also alive so his government can also take decisions to revive the business activities in Pakistan by pushing down interest rates.