Ongoing Political and Economic Turmoil of Pakistan

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Pakistan at the end of IST first four months of 2019 and some days away from its Federal Budget of FY 2020 is encircled by lot of turmoil’s.

Apparently PTI government is relying on cases against PML N and PPP leadership and with time to time by making changes in their ranks with no results particularly in favor of people of Pakistan. With Feudal, Sardars, Khans and big businessmen still intact are looking for their own interest by changing their party affiliations. The country looks highly divided, even some media circles are claiming Musharraf as best general of Pakistan, Zaradri as best President of Pakistan and Mian Nawaz Sharif as champion of democracy with Imran Khan as sign of change. These perceptions are totally wrong as each carry lot of lapses.

So with leaderless society we are trying to look for some change. In the past these vacuums have been filled by the Military but this time it is looking bit difficult as our Military is currently entangled with lot of challenges on the borders and within the country.

But what our intelligentsia is doing. Discussing who is Sahib and who is Sahibah. What change would come with change of Finance Minister, Governor SBP and Chairman FBR? Some circles are claiming that through these appointments Pakistan has been handed over to the IMF. Some are claiming that old heads of SBP and FBR were still reporting to Ishaq Dar. What a fantasy that our media is using such useless news as a tool for its exposure.

 

Dr Reza Baqir new Governor of SBP on his arrival in Pakistan with his family. 

Shabbar Azmi New Chairman of FBR          

How far government can carry this drama, nobody knows as our economy is hollow from all sides and requires immense structural reforms. You can not cure a patient of cancer just with Aspirin. You have to go for immense changes by raising accountability mechanism, bringing down government expenditure, raising tax revenue, bringing down current and fiscal deficits, creating jobs, planning human resource development programs in Pakistan where population below 30 years of age is 70% of total population

Reportedly Fitch Solutions in its latest report on Pakistan’s economy has revealed that Pakistan and the IMF will soon reach an agreement over a potential bailout size of about $12 billion (now being reported as $ 8 billion). The agency noted, “The conditions and targets will focus on key areas such as fiscal consolidation and debt management, a review of monetary and exchange rate policy, financial and banking sector reforms.

Rising twin deficits, devaluation of PKR, increase in inflation, rise in its public debt size are the main concern for Pakistan economy

During last 9 months the dollar saw a rise to Rs143.5 in the interbank market from Rs 121 in September last year. This is the highest ever level the dollar has reached and the highest gain in its history. The rupee has traded in a tight range of between 104-105 per dollar since December 2015 and now to some forecasts can cross Rs 150 in the coming months.

Public Debt is now touching 87% of its GDP. According to reliable sources the PPP government borrowed an average of Rs 5 billion a day for five years between 203-2018. The PML-N government borrowed at an average of Rs7.7 billion per day. The PTI government during the last five months has been borrowing at an average of Rs15 billion per day. So the worst has come in PTI government.

Fiscal gap for the current year is due to come amounting Rs 1.5-Rs 2.0 trillion forcing government to borrow this amount from the market or abroad in the coming months.

Pakistan has a low tax/GDP ratio. The current tax-to-GDP ratio is estimated to be between 11-13 % which is far below against other developing countries of the region such as India (15%) and Sri Lanka (18%). However, with the war on terror having engulfed Pakistan’s economy, the reforms in this regard could not be brought in. Now it is the time to come up with reforms to improve tax revenue to at least 15-17% of GDP with Mr. Shabbar Zaidi as FBR Chairman.

 

IMF and others-Economic Outlook (Pakistan)
2019 2020
Real GDP growth 2.9% 2.8%
GDP per capita – PPP $ 5,269 $5328
Inflation (CPI) 7.6% 7.0%
Current Account Balance % of GDP -5.2% -4.3%
Unemployment rate In Pakistan, the unemployment rate measures the number of people actively looking for a job as a percentage of the labor force. 6.1% 6.2%
Public debt (gross debt as a % of GDP) 87.0% 89.1%
Fiscal Deficit % of GDP -7.4% -7.0%

With current account deficit of $ 19 billion last year, the focus is now on CPEC where China has promised $57 billion in investment in projects along the China-Pakistan Economic Corridor and Gulf States however rising oil prices from $ 50 to above $ 70 per barrel are becoming matter of concern for Pakistan.

Though Pakistan’s economy continues to grow, but beneath the surface, a number of warning signs are emerging, says the World Bank’s Pakistan Development Update report, which notes with concern that revenue growth is slowing, the fiscal deficit is growing, exports continue to fall and energy sector circular debt has resurfaced.

These emerging concerns suggest that renewed policy emphasis is required on macroeconomic stability to prevent the country from losing the impressive gains achieved and other structural reforms, such as those required in the energy sector, it notes. It is now to be seen that how new Governor of SBP Dr Reza Baqir performs. In his last appointment in Egypt by the IMF the economy of Egypt declined considerably so it would be preferable for him to not to follow Egypt economic model.

In Pakistan, officially 29.5% and unofficially above 50% of the population lives below the national poverty line. In Pakistan, the proportion of employed population below $1.90 purchasing power parity a day is 8.6%. For every 1,000 babies born in Pakistan, 66 die before their first birthday.

No doubt Pakistan’s GDP grew at 4.7% in 2016, driven by robust growth in services and industry. Pakistan’s GDP growth has edged up to 5.2% in 2017 and 5.5% in 2018 but now it has been projected below 3% for 2019 and 2020.

So with these pitfalls stated above next 6 months are looking bit difficult. Let us see what new economic team can do practically something.

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