PTI One Year Economic Performance

First time in power, Pakistan Tehreek Insaf (PTI), has completed one year in the government. This political party was established by cricketer turned politician Mr. Imran Khan with the slogan of change “Tabdeeli”. Chairman PTI Mr. Imran Khan, now Prime Minister of Pakistan (PM), gave vision to the general public that he will make new Pakistan by bringing corruption free good governance and supremacy of Justice. On Economic front he promised to increase the employment rate and to stay away from the debt trap of International Financial Institutions. He nominated Mr. Asad Umer as his cabinet’s Finance Minister well before the elections where according to Chairman PTI, he has a plan to improve the economic conditions of Pakistan. After two decades of struggle, the slogan “ Change “ attracted votes from different classes of public and the party won the elections. Mr. Imran Khan was sworn in as Prime minister of Pakistan and as expected Mr. Asad Umer became Finance Minister of Pakistan.

Right after assuming power, PTI went into talks with International Monetary Funds (IMF) against the rhetoric of the Party Chairman and these negotiations with the IMF have changed the course of action of the PTI economic team. Mr. Asad Umer swapped with Mr. Hafeez Shaikh. New Advisor to PM on Finance Mr. Hafeez Shaikh changed Governor State Bank of Pakistan (SBP) and new Chairman Federal Board of Revenue has been installed. This is a long debate if the change was required but it is an obvious fact that Pakistan is witnessing Economic Emergency where there is no chance of mistake and Mr. Imran Khan knows the same. Apart from these economic conditions, Pakistan was under severe international pressure including a hanging sword of Financial Action Task Forces. So, it is apparent that Mr. Imran Khan did not even care about his own man and injected a specialized economic team to take care of financial matters whereas he himself took over international front with Mr. Shah Mehmood Qureshi, Foreign Minister. So far diplomatic affairs are gaining success on the international front and it will definitely help Pakistan in its economic matters.

If one may execute a quantitative analysis, economic indicators may be assumed as a tool of performance together with recovery figures through accountability and broadening of Tax Net. Good news is that the Current Account Deficit (CAD) and Trade Deficit (Twin Deficits) showing decreasing trend tremendously but slowing down of economy and fall in Gross Domestic Product (GDP) growth rate is a very bad news. CAD reduced by 73% Year on Year (YoY) whereas Trade Deficit reduced 47% YoY. The Slow down of the economy was an obvious outcome for the import based economy which got affected due to the huge devaluation of Pak Rupee (Approx. 35%) when the Exchange rate is set to free. Though it helped to bring down twin deficits but introduced double digit inflation crossing 10%. It compelled SBP to raise the Discount Rate which further resulted in businesses becoming costly. In short, controlling twin deficit increased twin input costs of doing business i.e. Exchange Rate and Interest Rate. 

Besides these economic indicators as a result of tight monetary policy, other quantitative parameters are not showing much improvement due to the fact that corruption is so deep rooted that proving corruption out of a corrupt environment is giving the accountability institutions a big trouble. On the other hand, despite the fact that the new FBR Chairman is determined towards documentation of the economy for better tax collection, tax evaders are retaliating and trying to skip this fiscal measure taken by the government by way of different threats. Does this mean that the government has failed to bring any positive change into the economic system of the country? Answer to this question is too early to conclude when the government is trying to change import based consumer behavior in the country. It is imperative to mention here that the YoY Import decreased 26% whereas the economy witnessed 11% increase in Exports. Which means ; Trade Deficit coming down.

PTI preferred to get an International Monetary Fund (IMF) program not only to bring liquidity into Pakistan but for financial discipline through various monetary and fiscal measures including a strategy to undo Pakistan’s name from Grey List of Financial Action Task Force (FATF) by introducing Qualitative measures by strengthening regulatory bodies which will control Money Laundering and Terrorist Financing. This action of the party is actually against the previous rhetoric statements of Party chairman Mr. Imran Khan that it is better to suicide than to go with IMF. Maybe his Financial Advisors have Plan B but when he saw that there might be no such plan or perhaps it is difficult to execute, he changed the cabinet and finalized the IMF program.

On flag hoisting ceremony on SBP building at 14th August, Governor SBP Mr. Reza Baqir hinted about the economy on right track and all possible measures to deal with economic emergency have been so far applied that means worst is over.  He emphasizes present economic policies to be consistent so that the final outcome would be based on the effects of these reforms. He stated that these painful measures will get long-term economic growth which will benefit the low income and middle class. Prime Minister Imran Khan also quoted several times that soon the country will get out of economic troubles and he considers 6 months remaining for results to impact the national exchequer, positively. Question arises if Lower Income and Middle Class are happy with the pain inflicted by tough economic measures. Simple reply to this query is NO.

By controlling the Twin Deficit, Khan’s government is ready for the GDP growth rate to slow down from 5.75% to 2.5% and inflation to rise as stated in the IMF report for the current fiscal year. As Economy from last couple of decades has become import based where local manufacturers are discouraged and easy money is earned at which even tax were not submitted to national exchequer, twin input cost i.e. Devaluation and Interest rate hike resulted in an economic slow-down whereas government efforts to increase tax net making lock down calls from traders and middlemen. This scenario is triggering economic chaos everywhere where no one can determine the exact future of one’s economic activity. Therefore unemployment is an ultimate outcome affecting Lower class household income, value of money and purchasing power. It is an apparent result of IMF conditions imposed over Pakistan for the next 36 months. However, if government strict measures for financial discipline may successfully be installed it will bring prosperity for the lower income class in the longer run and the burden will be shifted to the Upper Class in the shape of direct taxation. 

Government is committed towards achieving the toughest target imposed not only by the IMF but itself for prosperous Pakistan. For said reason the government has set some goals which are set to be short term and long term. In the short run, Twin Deficits are controlled which increases the twin cost of production specially for importers as explained above but it will help local industries to grow. Initially, import based GDP will fall and then a pattern will be set where only essential imports will be allowed. Afterwards Export based GDP will increase and import substitution for local consumption will become the future of the country that will save foreign exchange. For said reason the government is trying to improve efficiency of quality control units. By increasing tax net and inflicting harsh measures for the same, government has opened another battle field with traders and retailers but in longer run when this segment of economy, who do not pay property tax, become documented through CNIC condition and will be paying GST deducted to national exchequer, it will result in increasing tax collection which ultimately be used in paying debt servicing and financing of subsidies. Soon when the tax net will increase, it will bring stability in the economy, tax rates will fall and indirect taxation will be replaced with direct taxation. 

This long term scenario seems very optimistic though when we have a border situation at Line of Control where military conflict with neighbors is very much possible inflicting pain to already downturned economy, spending on international relations for Kashmir Issue is set to increase, sword of FATF black list scenario on our head and non-cooperative opposition is determined for toppling the government. Above all, the US-China Trade war has reduced the global economic activities due to which business opportunities are on declining trend.  However it is said to be true that when a nation is led by a non-corrupt leader there would be a positive outcome at the end of the day. Pakistan’s success on the international front is one example where after 50 years we are able to voice for Kashmir at the United Nations (UN) and get it recognized internationally that India is an oppressor, occupying Kashmir against the resolutions of the UN.