Review of PPPP performance

Review of PPPP performance

performance
Facts and fudging
Economists are reluctant to buy what the PPP ads boast about the last five-year performance on economy
By Tahir Ali

http://jang.com.pk/thenews/apr2013-weekly/nos-21-04-2013/pol1.htm#1

The Pakistan People’s Party Parliamentarians (PPPP) recently published advertisements in newspapers and issued its manifesto for the 2013 elections wherein it enumerated its achievements during its last five-year rule.

Economic experts, however, reject these claims and accuse the regime of fudging the figures, mismanagement, poor governance and fiscal indiscipline.

The national economy is still faced with low revenue receipts, declining tax to GDP ratio, rising current expenditure, dying foreign direct and local investment, low annual GDP growth rate, rising debt to GDP ratio, acute power/gas crisis and the inefficient and sick public sector entities (PSEs).

Though the PPP claims reducing inflation to 9.6 per cent, it remained in double digits, hovering between 11-15 per cent during the last five years. As per the Ministry of Finance (MoF) figures, overall consumer price index and food CPI increased from 100 points in 2008 to 175 points and 196 points in January 2013. The IMF says inflation in Pakistan will return to double digits by the end of this fiscal year.

Food insecurity is on the rise. As per the National Nutrition Survey, 2011, conducted by the BISP, 58 per cent of Pakistanis were food insecure.

According to Dr Muhammad Yaqoob, former State Bank governor, the economic conditions of an average family have become worse due to rising prices, large-scale unemployment and shortage and the rising cost of gas and electricity.

The PPP had vowed to establish a fair tax system. It claimed raising tax revenues from Rs1 trillion in 2008 to over Rs2 trillion in 2012. Though revenues have increased in quantity, as per 2012-13 fiscal policy statement (FPS) of the MoF, total revenues were 14.6 per cent of GDP in 2008 which came down to 12.4 per cent in 2012.

The government has been unable to meet any of the revenue, expenditure and deficit targets over the last five years. For indecisiveness or self-centredness, it failed to levy tax on agriculture and impose reformed general sales tax as it didn’t want to annoy the industrial, business or agriculture lobbies and political allies. Most of its leaders allegedly avoided fulfilling their tax responsibilities, thus setting bad precedents for others.

The party claimed foreign remittances are now $14 billion against $6.4 billion in 2008. But “the rise partly reflects the diversion of black money and illegally-held capital abroad through remittance channels without any fear of being questioned about the sources of the funds. Moreover, there has been an inevitable need for workers abroad to send more remittances to support their families against rising inflation,” according to Dr Yaqoob.

According to FPS, the real GDP growth was 6.8 per cent in 2007. It came down to 3.7 per cent in 2008. From 2009 to 2012, it was recorded at only 1.7, 3.1, 3.0 and 3.7 per cent respectively.

The PPPP, in its 2008 manifesto, had pledged a sound debt policy and that the future generations won’t be overburdened with excessive debt.

But instead, the public debt — both domestic and foreign debt — has more than doubled in the last five years. It borrowed more than all the previous governments combined. The public debt was Rs4.8 trillion in 2008 but reached Rs12.6 trillion by June 2012. The tax to GDP ratio which was 55.4 per cent in 2007 was at 61.3 per cent in 2012. Total debt is now over Rs13 trillion.

Every Pakistani baby was born with a debt of Rs30,000 in 2007. Today he/she carries a debt of over Rs80,000.

The debt rose up by 21 per cent per annum despite the fact that fiscal responsibility and debt limitation act of 2005 had asked for reducing debt to GDP by 2.5 per cent annually to be able to keep Debt to GDP ratio below 60 per cent by June 2012-13.

If the IMF standby arrangement programme hadn’t remained suspended over the last three years, Pakistan’s external debt of $66 billion would have been jacked up by another $5-6 billion during the time.

The SBP second quarterly report for 2012-13 states that the government was unable to meet its self-imposed quarterly limit of zero net budgetary borrowing from the SBP.

Pakistan’s domestic debt servicing is climbing and is now the biggest single expenditure item. Similarly, its external debt servicing will reach $6 billion in the current and to $7 billion in the next fiscal year.

The party claims to have reduced fiscal deficit from 7.6 per cent in 2008. But if compared with 4.4 per cent in 2007, it rose to 5.3, 6.3, 6.0 and 6.6 per cent respectively in the next four years. The IMF estimates fiscal deficit will be 7.0-7.5 per cent of GDP as against the government target of 4.7 per cent. According to Dr Ashfaque Hasan Khan, a leading economist, the fiscal deficit reached as high as 8.5 per cent last year.

The manifesto claims Forex reserves are now $13.2 billion against $8.2 billion in 2008, but according to Dr Khan, the SBP’s Forex reserves stand at $6.69 billion on April 5. “Pakistan must retire $0.838 billion to IMF by June 30. With little or insufficient external inflows, the SBP’s reserves may fall to $5.8 billion by June 2013. The SBP has borrowed $2.3 billion from commercial banks in the forward market and if we adjust it, the SBP’s reserves would be $3.5 billion by then — sufficient to trigger a crisis of confidence.”

The party claimed it reduced interest rate from 15 per cent in 2008 to 9.6 per cent in 2013. Industrialists and experts doubt this. Nevertheless, the rate spread — the difference between return on deposits and lending rates — is still very high in Pakistan.

In 2008, the rupee was 62.61 against the dollar. The PPP left it at 98.98 by March 15, 2013. This has, besides causing price-hike locally, increased public debt and made imports costlier.

Instead of restructuring or privatising the loss-making PSEs, the PPP government kept on doling out hundreds of billion annually to these entities. Most of the PSEs were allegedly handed over to political cronies and were further destroyed by large-scale inductions by treating them, as Dr Khan put it, as employment bureaus.

Though the party claims having added 3600MW to the national grid, the country continues to face acute energy shortage. It has made life miserable for the people, halted industrial development and estimated to have inflicted a loss of Rs3 trillion to the country during last five years.

Over Rs1.8 trillion doled out to the power sector for financing circular debt would have sufficed to complete several projects that would have solved much of the energy problems.

The PPP had promised growth of business and industry with equity and making private sector as engine of growth. But Pakistan’s industrial sector and the private sector was badly hit by lawlessness, policy inaction and shortage of energy.

In 2007, large scale industrial production was 8.7 per cent which came down to 4.1 per cent in 2008 and to minus 8.2 per cent in 2009. In 2010, it again increased to 4.81 per cent but then declined to 1.14 per cent in 2011 and 1.02 per cent in 2012.

Economic growth was three per cent per annum during the PPP tenure against seven per cent per annum in the preceding five years.

Dr Khan said investment rate also continued coming down during the last five years and declined to a 50-year low at 12.5 per cent of GDP from 22.5 per cent in 2006-07. Industrial growth stagnated at near zero per cent against 12.4 per cent per annum in the preceding five years.

During FY09, foreign direct investment fell to $3.72 billion and further to $2.20 billion in 2010 and $1.63 billion in 2011.

…………………….

Original text of the article.

Reviewing PPPP performance on economy

By Tahir Ali

The Pakistan Peoples’ Party Parliamentarians (PPPP) recently published advertisements in newspapers and issued its manifesto for the 2013 elections wherein it enumerated its achievements during its rule.

Independent economic experts however reject these claims and accuse the regime of, inter alia, fudging of figures, mismanagement, poor governance, self-centredness and fiscal indiscipline.

The national economy is still faced with low revenue receipts, declining tax to GDP ratio, rising current expenditure, dying foreign direct and local investment, low annual GDP growth rate, rising debt to GDP ratio, acute power/gas crisis and the inefficient and sick public sector entities (PSEs).

Inflation

Though PPP claims reducing inflation to 9.6 per cent, it remained in double digits, hovering between 11-15 per cent during the last five years. As per the ministry of finance (MoF) figures, overall consumer price index and food CPI increased from 100 points in 2008 to 175 points and 196 points in January 2013. The IMF says inflation in Pakistan will return to double digits by the end of this fiscal year.

Food insecurity is on the rise. As per the National Nutrition Survey, 2011, conducted by the BISP, 58 per cent of Pakistanis were food insecure.

According to Dr Muhammad Yaqoob, former State Bank governor, the economic conditions of an average family have become worse due to rising prices, largescale unemployment and shortage and the rising cost of gas and electricity.

Revenue

The PPP had vowed to establish a fair tax system. It claimed raising tax revenues from Rs1 trillion in 2008 to over Rs2tr in 2012. Though revenues have increased in quantity, but as per 2012-13 fiscal policy statement (FPS) of the MoF, total revenues were 14.6 per cent of GDP in 2008 which came down to 12.4 per cent in 2012.

The government has been unable to meet none of the revenue, expenditure and deficit targets over the last five years. For indecisiveness or self-centredness, it failed to levy tax on agriculture and impose reformed general sales tax as it didn’t want to annoy the industrial, business or agriculture lobbies and political allies. Most of its leaders allegedly avoided fulfilling their tax responsibilities, thus setting bad precedents for others.

Foreign remittances

The party claimed foreign remittances are now $14bn against $6.4bn in 2008. But “the rise partly reflects the diversion of black money and illegally-held capital abroad through remittance channels without any fear of being questioned about the sources of the funds. Moreover, there has been an inevitable need for workers abroad to send more remittances to maintain their families for rising inflation,” according to him.

GDP growth

According to FPS, real GDP growth was 6.8 per cent in 2007. It came down to 3.7 per cent in 2008. During 2009 to 2012, it was recorded at only 1.7, 3.1, 3.0 and 3.7 per cent.

Public Debt

The PPPP, in its 2008 manifesto, had pledged a sound debt policy and that the future generations won’t be overburdened with excessive debt.

But instead, the public debt –both domestic and foreign debt –has more than doubled in last five years. It borrowed more than all the previous governments combined. The public debt was Rs4.8 trillion in 2008 but reached Rs12.6tr at June 2012. The tax to GDP ratio which was 55.4 per cent in 2007 is now at 61.3 per cent in 2012. Total debt is now over Rs13tr.

Every Pakistani baby was born with a debt of Rs30,000 in 2007. Today he/she carries a debt of over Rs80000.

The debt rose up by 21 per cent per annum despite the fact that fiscal responsibility and debt limitation act of 2005 had asked for reducing debt to GDP by 2.5 percent annually to be able to keep Debt to GDP below 60 percent by June 2012-13.

If the IMF standby arrangement programme hadn’t remained suspended over the last three years, Pakistan’s external debt of $66bn would have been jacked up by another $5-6 billion during the time.

The SBP second quarterly report for 2012-13 states that the government was unable to meet its self-imposed quarterly limit of zero net budgetary borrowing from SBP.

Pakistan’s domestic debt servicing is climbing and is now the biggest single expenditure item. Similarly, its external debt servicing will reach $6bn in the current and to $7bn in the next fiscal year.

Fiscal deficit

The party claims having reduced fiscal deficit from 7.6 per cent in 2008. But if compared with 4.4 per cent in 2007, it rose to 5.3, 6.3, 6.0 and 6.6 per cent in the next four years. The IMF estimates fiscal deficit will be 7.0-7.5 percent of GDP as against government target of 4.7 percent. According to Dr Khan, fiscal deficit reached as high as 8.5 percent last year.

Foreign exchange reserves

The manifesto claims Forex reserves are now $13.2bn against $8.2bn in 2008 but according to Dr Ashfaque Hasan Khan, a leading economist, the SBP’s Forex reserves stand at $6.69bn on April 5. Pakistan must retire $0.838bn to IMF by June 30. With little or insufficient external inflows, the SBP’s reserves may fall to $5.8bn by June 2013. The SBP has borrowed $2.3bn from commercial banks in the forward market and if we adjust it, the SBP’s reserves would be $3.5bn by then– sufficient to trigger a crisis of confidence.”

Interest rate

The party claimed it reduced interest rate from 15 per cent in 2008 to 9.6 per cent in 2013. Industrialists and experts doubt this. Nevertheless, the rate spread –the difference between return on deposits and lending rates –is still very high in Pakistan.

Rupee devaluation

In 2008, the rupee was 62.61 against the dollar. The PPP left it at 98.98 by March 15, 2013. This has, besides causing price-hike locally, increased public debt and made imports costlier.

Bleeding PSEs

Instead of restructuring or privatising the loss-making PSEs, the PPPP government kept on doling out hundreds of billion annually to these entities. Most of the PSEs were allegedly handed over to political cronies and were further destroyed by large-scale inductions by treating them, as Dr Khan put it, as employment bureaus.

Energy imbroglio

Though the party claims having added 3600MW to the national grid, the country continues to face acute energy shortage. It has made life miserable for the people, halted industrial development and estimated to have inflicted a loss of Rs3tr to the country during last five years.

Over Rs1.8 trillion doled out to the power sector for financing circular debt would have sufficed to complete several projects that would have solved much of the energy problems.

Industrial, economic growth and investment

The PPPP had promised growth of business and industry with equity and of making private sector as engine of growth. But Pakistan’s industrial sector and the private sector was badly hit by lawlessness, policy inaction and shortage of energy.

In 2007, large scale industrial production was 8.7 percent which came down to 4.1 percent in 2008 and to minus 8.2 percent in 2009. In 2010, it again increased to 4.81 percent but then declined to 1.14 percent in 2011 and 1.02 percent in 2012.

Economic growth was three percent per annum during the PPP tenure against seven percent per annum in the preceding five years.

Dr Khan said investment rate also continued coming down during the last five years and declined to a 50-year low at 12.5 percent of GDP from 22.5 percent in 2006-07.  Industrial growth stagnated at near zero percent against 12.4 percent per annum in the preceding five years.

During FY09, foreign direct investment fell to $3.72bn and further to $2.20bn in 2010 and $1.63bn in 2011.

Corruption

Corruption was rampant. Hajj scam, Pakistan Steel plunder, railways corruption, rental power loot and others scams remained the talk of the town.  Anti-corruption bodies were however made dysfunctional by their politicization. Transparency International estimated Pakistan lost over Rs8.5tr in corruption, tax evasion and bad governance during the previous government.

………………..

Achievements of PPPP

The new PPPP’s manifesto and advertisement have listed its accomplishments during the 2008-13 government.

“We inherited a bubble economy based perilously on consumer credit, stock market speculation, property mark-ups, non-transparent privatization and foreign aid. Inflation stood at 25 per cent, making the poor dangerously vulnerable to local and international shocks.”

“We lowered inflation to single digits standing at 9.6 per cent in 2013; raised tax revenues from Rs1 trillion in 2008 to over Rs2tn in 2013; We cut the fiscal deficit from 7.6 per cent of GDP in 2008 to 6.6 per cent in 2013(more robust as compared to India’s 8.7 per cent and the USA’s at 8.9 per cent); we kept public borrowing under 60 per cent of GDP; turned a current account deficit of $14bn in 2008 to a surplus of $62bn in 2013; investor confidence grew as the Karachi Stock Exchange index surged to 18,000 points in 2013 from 4,800 points in 2008 ( but the advertisement says it rose up from 5220 points in 2008 to 18185 points in 2013);  Forex reserves were $8.2bn in 2008 but are now $13.2bn (but the advertisement says these increased from $6bn in 2008 to $16bn in 2013); foreign remittances are now $14bn against $6.4bn in 2008; reduced fiscal deficit from 7.6 per cent in 2008; disbursed Rs 70bn amongst 75 lac deserving families BISP besides other pro-poor programmes; signed the Pak-Iran agreement on Gas Pipe Line, handed over Gowader Port to China; increased exports from $18 in 2008 to $29bn in 2012; the rural economy went up from Rs50bn in 2008 to Rs800bn in 2013; we added 3,700 MW of power to the national grid during our tenure and launched Mangla, Tarbela extension and other projects; increased pays of public sector employees by 158 per cent; foreign investment increased and so on.”

 

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About Tahir Ali Khan
I am an academic, freelance columnist, writer and a social worker.

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