EDITORIAL: Prime Minister Imran Khan, addressing the launch of the ‘Track and Trace’ system for the sugar industry, said the biggest problem we face is that there is not enough money to run the country and therefore the country has to borrow. In his speech, he also alluded to the possibility of a threat to national security that could be posed by a heavily indebted economy. Acknowledging that efforts to introduce the “tracking and tracing” system have continued since 2008 or for 13 years, including three years under his own administration, the Prime Minister has implicitly accepted serious governance issues that contribute to the low ranking of the Pakistan on the Government Efficiency Index, compiled by the International Monetary Fund – at 130 out of a total of 192 countries with India at 59, Sri Lanka at 93 and even the Maldives at 95. Bangladesh is however ranked even lower at 153.
Pakistan’s budget deficits reflect the veracity of the Prime Minister’s claim that there is not enough money to run the country, which requires borrowing. And despite the major tightening of the Presidency and Prime Minister’s House, including the sale of items / livestock deemed superfluous as well as a significant reduction in overseas tours, the fact remains that budget deficits have remained unsustainable over the past three years – at over 7 percent. And current spending has grown much more over the past three years than ever before. It is true that part of the reason is the increase in current spending which rose from 3.9 trillion rupees in 2016-17 to 5,000 billion rupees in 2018-19 (an election year) to over 7,500 billion rupees. billion rupees in 2021-2022 (although if one subtracts the Ehsaas program budgeted at 240 billion rupees as this item was previously in development expenditure outside the PSDP) the total current expenditure is budgeted at 7.25 trillion rupees, an increase of 45%.
In a household kitchen budget, income determines spending. So with an anticipated increase in the petroleum tax, an addition of 4 rupees per month until the tax is at the rate of 30 rupees per liter, a household should save on the use of its vehicle and / or public transport if he wants to make ends meet meet. Likewise, the administration must focus on reducing its current expenses rather than allowing them to increase relentlessly. The government’s argument is that it cannot reduce: (i) debt service and principal repayment as it falls due in the event of default would simply cripple the economy. However, in this context as well, it is relevant to note that over the past three years the rate of debt increase has been unprecedented in our history – domestic borrowing increased from Rs16.5 trillion in August. 2018 to over 26 trillion rupees today, a 58 percent increase, while external debt has risen from $ 95 billion inherited by the PTI administration to $ 126 billion today, or an increase of 33 percent. Blaming it entirely on previous administrations is a narrative that no longer holds weight because no government in the world is starting from scratch, but instead commits to solving problems caused by the flawed policies of their predecessors; (ii) defense spending, given the security challenges facing the country today, especially after the Taliban took power, cannot be reduced. This is a valid point, but audit reports indicate that waste in civilian and military procurement and day-to-day operation is significant and requires immediate attention and reduction; and (iii) pensions continue to rise and it is high time for the government to start implementing the pension reforms formulated by the former finance secretary and one of Prime Minister Waqar Masood Khan’s special assistants. last year.
Imran Khan also chaired a Prime Minister’s Priority Sectors Review meeting on Tuesday and after receiving a detailed briefing on the progress of Phase II of the China Pakistan Economic Corridor (CPEC), he said the government is now focusing on increased investment in the export industry to create jobs and growth. These statements have been made several times over the past three years as well as in previous administrations with the same incentives (fiscal and monetary as well as cheaper utility tariffs) extended to the export sector; however, exports continue to hover around 9-10 percent of GDP against the required minimum of 15 percent of GDP. As a result, they continue to be overwhelmed by imports and the danger of a current account deficit looms again on the horizon, despite the massive increase in remittances.
It is therefore necessary to undertake empirical studies instead of relying on the same policies that have not yielded significant dividends in the past. World Bank Senior Economist Derek HC Chen at the launch of a Pakistan Economic Update report Reviving Exports put it succinctly: “The long-term decline in exports as a percentage of GDP has implications. for Foreign Exchange, Jobs and Productivity Growth. Therefore, addressing the main challenges that are necessary for Pakistan to be competitive in global markets is imperative for sustainable growth. The recommendations include (i) gradually reducing the effective rates of protection through a long-term tariff rationalization strategy to encourage exports; (ii) reallocate export financing from working capital to capacity expansion through the long-term financing mechanism; (iii) Consolidate trade information services by supporting new exporters and evaluating the impact of ongoing interventions to increase their effectiveness; and (iv) Design and implement a long-term strategy to improve business productivity that promotes competition, innovation and maximizes export potential.
Its suggestions / recommendations deserve serious consideration.
Copyright Business Recorder, 2021