A report by the State Bank of Pakistan on the health of the Pakistani economy at the end of the third quarter (March) of the current financial year 2000-2001 paints an interesting picture. Among its summary conclusions may be listed the following: 1. Large-scale manufacturing is up by 8.8%, as against 3.5% last year and 3.6% a year earlier, partly because sugar production and petroleum refining are buoyant. [This is a good sign.]
2. Exports are also up 8.4%, as against 8.9% last year and a decline of 11.7% a year earlier. [This is a good sign.]
3. Home remittances are up by 16.8%, as against a fall of about 9% last year and a fall of 31.5% a year earlier. [This is a good sign.]
4. Tax revenues are also up by about 15%, as against 18% last year and a mere 2% in the earlier year. [This is a good sign.]
5. The consumer price index, which is a measure of the rate of inflation, is up by 4.8%, as against 3.4% last year and 6.3% a year earlier. [This is not a bad sign.]
5. The fiscal deficit is down to 5.3%, as against 6.5% last year and 6.1% a year earlier. [This is a good sign.]
6. The trade deficit is up by only 1.7%, as against 2.3% last year and 3.6% a year earlier. [This is a good sign]
7. The cotton crop has largely escaped the ravages of the drought, partly because of its early sowing season and partly because it is less water-intensive than other crops. [This is a good sign.]
8. The IMF targets have been generally met and the country’s “good standing” with the IMF has “enhanced its credibility with the international community”. [This is a good sign.]
8. BUT GDP growth will be less than 3% this year, as opposed to under 3% last year. Therefore GDP per capita will be stagnant, since population growth is still estimated at about 3% per year. [This is a bad sign]
9. Responsibility for the low GDP has been laid at the door of water shortage and drought, “which have taken a heavy toll of agricultural production”. Last year, the major crops averaged over 9% growth. This year, there may be an actual decline of over 5%.
In other words, implies the SBP, the managers of the economy have notched many pluses. Unfortunately, however, nature has thwarted their designs and stopped the economy from taking off into self-sustaining growth. Is this true?
No, it’s not. Agricultural production accounts for less than 25% of GDP. A small decline in the output of some agricultural crops, excluding cotton which accounts for nearly 65% of our exports, should not have such an adverse impact on GDP growth rates. After all, last year agricultural production of the major crops averaged growth of over 9.6% as admitted by the SBP, yet GDP growth was less than 3%!
A glance at the SBP’s summary reveals that critical statistics and explanations which tell the real story behind the economic slump are missing from its analysis. For starters, there is no mention of what has happened to savings and investment (they have actually fallen to about 11% of the GDP, the lowest for a long time) and no attempt has been made to outline and explain the decline of foreign investment in the country (a decline of 70% over last year’s level, bringing it to under US$150 million so far this year). Nor has the SBP told us how much money, which might have been used for investment at home in the right conditions, has fled to foreign shores in search of safety and certainty (unofficially estimated to be about US$1 billion this year). Indeed, the SBP has not explained why anyone in this country should save in rupees when interest rates are down to under 10%, the lowest in a decade, and the government proposes to levy an unprecedented income tax on saving schemes, while the rupee is being devalued by about 15% every year and dollar deposits can earn at least 5% abroad. [In other words, rupee savings yield less than 10% while dollar deposits yield at least 20% in rupee terms.] We might also point out that the home remittance figure is up not because Pakistani expatriates actually sent more money home this year than last year but because there was a one-time windfall handout from the Kuwait government to Pakistani workers in Kuwait as compensation for losses suffered during the Gulf war in 1991. Finally, the fact that the fiscal deficit is down to 5.3% of GDP is relevant only for IMF purposes. The more relevant fact is that this cut in the deficit has entailed cuts in development expenditures and poverty alleviation programmes, and this fact has not been highlighted by the SBP. Similarly, there isn’t much point in crowing about the revival of Pakistan’s standing in the international community by virtue of access to debt-rescheduling programmes when we are being forced to run faster and faster merely in order to stay at the same spot.
The fact is that the economy is down because Pakistani savers and investors are not inclined to save and invest at home because the government’s domestic and foreign policies are not designed to instill certainty and confidence. Until these are realigned, all statistics will prove to be lies and more damned lies.