Year of desolation

Editorial Board
Friday, Jun 09, 2023

The Pakistan Economic Survey 2022-23 comes as further confirmation of what was already known: the country is emerging from a year of unprecedented economic desolation. Recessionary pressure from the global economy, supply shocks emanating from the Ukraine war, devastation of the cataclysmic flooding of the last monsoon that washed away crops and destroyed farmlands and infrastructure – all contributed to the unseemly picture painted by the survey. But probably the greatest disadvantage the economy suffered this year came from the endless domestic political turmoil stoked by former prime minister Imran Khan – against which the government looked clueless and powerless throughout the fiscal year.

Finance Minister Ishaq Dar was particular to mention how the PTI government wrecked the economy, but it seems he is yet to realise how the PTI out of power hamstrung the PDM coalition government to the extent that its economic management became almost totally inefficacious. The survey clearly shows that, while the coalition government may have caused the economy to swerve at the last moment to avoid the precipice of default, it almost totally lost steering thereafter and the economy continued down a slope throughout the year. Growth forecasts were cut multiple times until we closed the year at the provisional figure of 0.29 per cent GDP growth.

The most prominent positives (on paper) surfaced by the survey are the nominal primary surplus and a lower current account deficit, both of which are attributable to the import compression applied by the government. However, while the administrative curbs on imports helped the government to deliver a primary surplus of Rs99.1bn (0.6 per cent of GDP) against a deficit of Rs890.2bn last year and narrow down the CAD for the Jul 22-Apr 23 period by 76 per cent to $3.3bn or 1.0 per cent of the GDP from $13.7bn or 3.6 per cent of GDP last year, they clearly exerted a proportionate drag on exports (down 12.1 per cent to $25.4bn from $28.9bn last year). Other positives reported by the survey include improved national saving (44.7 per cent growth) on the back of lower public spending on consumer durables, automobiles, machinery, and appliances on account of stellar inflation; and higher revenue collection (up by 18.1 per cent to Rs6,938.2bn), which may be chalked up to better administration. Happily, the improvement straddles both tax (up 16.1 per cent to Rs6,210.1bn) and non-tax (up 25.5 per cent to Rs1,320.5bn) revenue streams.

Everything besides these token bright spots is doom and gloom. Total expenditure (Rs20.2tr) outstripped total revenue (at Rs6.94tr) by a wide margin. The agriculture sector grew by a minuscule 1.55 per cent. The industrial sector shrunk by 2.94 per cent. The services sector scored a nominal growth of 0.86 per cent. Manufacturing growth at 3.91 per cent hides a hairy 8.11 contraction of the large-scale manufacturing sector. The decline of the mining and quarrying sector moderated somewhat at -4.4 per cent compared with last year’s -7.0 per cent.

Inflation over the Jul-May period has been reported at 29.16 per cent as against 11.26 per cent for the comparable period last fiscal. Overall debt and liabilities (Rs72.97 trillion), central government debt (Rs59.24 trillion), and external debt and liabilities (Rs35.68 trillion) soared over the July-March period while workers’ remittances shrunk over the Jul-April period to $22.74bn from last year’s $26.14bn. This aggravation is largely attributable to the worsening of the rupee’s exchange value, while the last is clearly on account of Dar’s policy of keeping the rupee pegged for part of the year, giving rise to a forex black market and driving remittances to the grey channels. The country’s hard currency reserves stood at a paltry $4.09bn as of May 27.

Investment as a percentage of GDP stood at 13.60 per cent over the July-June period as compared with 15.70 per cent last year. Currency in circulation as of May 20 stood at Rs1,230bn compared with Rs879bn last year, a clear indication of how bad inflation has been this year. This stellar inflation, which drove the policy rate to 21.0 per cent over the course of 12 months, applied an unprecedented squeeze on private sector credit, bringing it to a puny Rs75.4bn as of May 12 from last year’s Rs1,345.2bn. Fixed investment loans stood at Rs185.4bn during the Jul-Apr period compared with Rs366.7bn last year, while working capital loans saw retirement of the tune of Rs460.3bn until April, compared with Rs628.9bn last year.

Closing the current fiscal at this grim note should be a shame for any government, much less a government that claims to represent the veritable national political consensus. The survey unmistakably establishes that the economy has been a shipt set adrift with nobody at the helm. Now that the firestorm of political instability seems to be ebbing, it is up to Dar and co to prove to the nation they have what it takes to guide the economy out of troubled waters. The national budget to be announced today is their opportunity to do that.