- Remedying the errors of the past
For sustained economic growth it is imperative for any economy to achieve macroeconomic stability. Unfortunately that element has been missing all along in Pakistan, with the result that the economy experienced frequent phases of boom and economic melt-down. Last year the economy missed almost all the set targets. Over the last five-year plan period also the average GDP growth rate remained 4.7 percent against the target of 5.4 percent. The 4.7 percent growth was surely an improvement on the 3 percent GDP growth rate on which the economy was stagnating by the end of 2013. Economists believe it was a consumption led-growth. Borrowing from different sources imparted further impetus to this phenomenon, leading to higher debt payment liabilities creating debilitating macroeconomic imbalances.
During this period the rising demand was met through imports. As there was no increase in investments, this led to enhancement in external imbalances as well. The situation further worsened due to low level of revenue collection and the rise in unproductive expenditures. Consequently when the present government came into power it inherited an economy which faced large fiscal and current account deficits and unmanageable debt liabilities.
The budget by the government, it is probably the best effort that could have been made by any ruling party under the given conditions and having the determination to pay the political cost to stem the rot in the economy
The situation forced the government to take immediate short-term steps to create a breathing space before going for rectification of the macroeconomic imbalances. It sought help from the friendly countries and mustered $9.2 billion from them to ensure timely repayment of previous loans and building buffers. It also had to take tough decisions like increase in energy tariffs to check the rising circular debt, reduction in imports though regulatory duties and withdrawal of some of the tax relaxations to arrest the deterioration in the primary balance. These decisions undoubtedly were very tough for the government from the political perspective, but nevertheless were necessary for laying the foundation for economic stabilization. The government also had no option but to seek a bailout package from the IMF. Reportedly the IMF has agreed to provide $6 billion.
The opposition parties are trying to take a dig at the government for seeking the IMF bailout calling it a sell-out to the international agency, notwithstanding the fact that they also availed the IMF bailout packages during their tenures, justifying them as absolutely vital for reviving the economy and meeting the debt liabilities to save the country from default. The present government, honestly speaking, also was faced with similar conditions and had perforce to follow the same course.
I do not think there is anything wrong in availing the IMF package in times of difficulty. The ideal situation is when the country relies solely on indigenous resources to achieve proper economic growth. The conditions set by the IMF and the recipe suggested by it for the Extended Fund Facility are actually what the country needs for macroeconomic stability. The situation that the country is in at the moment is not because of any fault of the IMF but the inability and lack of political will by the successive regimes to utilize those facilities for consolidating the economic edifice in recognition of the ground realities. Had the previous regimes taken those tough decisions at the earliest stage and given a right direction to the process of economic development, Pakistan would surely have been rubbing shoulders with the economic giants of Asia.
The PTI government, apart from short term moves to raise resources for avoiding default on loans and creating a breathing space, also put in place economic initiatives that were meant to recalibrate the economic paradigm. The macroeconomic adjustments like monetary tightening, exchange rate adjustment, expenditure control and increase in regulatory duties on non-essential imports were some of the positive measures in this regard. These steps did create some impact. However their full impact would become visible with the passage of time as such initiatives do have a time-lag for producing the desired results. What really matters is the sustained efforts to maintain that momentum.
The PTI government has tried to do the same in the current budget announced by it. Taxation and reforms are on top of the agenda. The government has set an ambitious target of Rs 5.5 trillion for revenue collection and also put in place the relevant measures to support that effort. It has opted for broadening the tax base by ensuring complete documentation of the economy combined with an additional package of additional direct and indirect taxes to the tune of Rs 600 billion. There is no doubt that in the short term some of the measures suggested in the budget will affect the economic situation of the poorer segments of the society due to their inflationary impact, but they would arguably create congenial atmosphere for nudging economic growth as well as enabling the government to raise required revenues for development and promoting the economic wellbeing of the poorer segments of society. The government has also announced visionary measures for revival of the agriculture sector and large-scale manufacturing sector which posted negative growth during the current year. The planners believe that the revival of this sector is linked to the growth in the agriculture sector and it will re-emerge on the back of expected growth in the domain of the former, helped further by government steps for the construction sector, SME, tourism and automobile sectors.
The budget also envisages relief measures for government servants in the shape of raise in the pay and pension of the retired employees. Allocations under Ehsas programmes including BISP have been raised, along with increase in the rate of stipend paid to the recipients. Although there is no dearth of the critics of the budget including the political opponents of the government, but for an impartial observer and evaluator of the steps proposed in the budget by the government, it is probably the best effort that could have been made by any ruling party under the given conditions and having the determination to pay the political cost to stem the rot in the economy.