By Khaleeq Kiani
Published in Dawn on June 09, 2023
• Industry contracts by 3pc, GDP growth a mere 0.3pc
• Finance minister hints at expansionary measures in today’s budget
• Dar says political cost borne unimaginable, but ‘worth it’
• Blames market perceptions, IMF ‘drama’ for weak exchange rate
• Insists new government should negotiate fresh programme with lender
ISLAMABAD: Finding himself on the back foot as he attempted to defend a jarring slowdown in economic growth in the outgoing fiscal year, Finance Minister Ishaq Dar, while unveiling the Pakistan Economic Survey 2022-23 on Thursday, spoke less about the dismal performance of various sectors of the national economy and more on the global environment and economic fundamentals the PDM government had inherited when it came to power in April last year.
Accompanied by Planning Minister Ahsan Iqbal and Minister of State for Finance and Revenue Dr Aisha Ghous Pasha, the finance minister unveiled that the country’s Gross Domestic Product (GDP) in the fiscal year 2023 — projected to grow at 5 per cent — only managed 0.3pc growth, with agriculture and services scraping along with 1.5pc and 0.86pc growth and the industrial sector contracting by a worrying 3pc.
Alluding to the previous Pakistan Tehreek-i-Insaf (PTI) regime, Mr Dar complained that “the [political] project, conceived in 2010, flourished in 2018, and reached its culmination in 2022,” but, in the process, “put the country in reverse gear”.
He complained that an economy that was believed to be primed for G-20 membership within a few years had lost its standing due to the PTI.
“We now have to resume development from where it was left off in 2017; with an inclusive and resilient growth trajectory that is sustainable, builds investor confidence and ends current market nervousness,” the finance minister said.
Seemingly eager to give the people something to look at beyond the depressing numbers, the finance minister also previewed the budget for the next fiscal year, to be unveiled today (Friday).
He revealed that the federal Public Sector Development Programme would be enhanced to Rs1.15 trillion in fiscal 2023-24, which would be augmented by another Rs1.6tr through provincial development programmes. He said this spending would help boost GDP growth in the new year.
Five ‘Es’, not three
Mr Dar recalled that the PML-N government had, in its previous tenure (2013-18), focused on the ‘three Es’ — energy shortages, extremism and the economic crisis.
He said that, just as it had tackled those challenges, it would now prioritise the ‘five Es’ — ‘exports’, ‘e-Pakistan’ through digitisation, the ‘environment’, ‘energy & infrastructure’, and ‘equity & empowerment’.
In addition, it will also be focusing on the post-floods ‘4RF’ — Resilient Recovery, Rehabilitation and Reconstruction Framework — as well as reviving the China-Pakistan Economic Corridor (CPEC) to revitalise economic growth in the upcoming budget.
Mr Dar hinted at an 18-20pc increase in the salaries and pensions of government employees, along with special incentives for agriculture, information technology and manufacturing in the federal budget for fiscal 2023-24.
The finance minister said the government’s plan for macroeconomic recovery involved both fiscal measures and structural reforms, adding that details would be announced in his budget speech.
‘Worth the political cost’
Commenting on macroeconomic indicators, the finance minister argued that they should be seen in the context in which the PDM coalition had formed the government in April 2022.
He said fiscal space had been strained, inflation was rising, financing needs were growing, debt was rising and, had the PDM not stepped in, the country might have experienced the “unimaginable” in a matter of weeks.
The final nail in the coffin, he said, was that the country’s credibility and trust were shattered by the last government not only giving up international sovereign commitments, but also reversing them.
He said the present government had paid a very heavy political cost while taking ‘tough measures’ to restore international confidence, which included increasing petroleum, gas and electricity prices, imposing fresh taxes, withdrawing subsidies, and introducing an austerity policy.
However, global crises and unprecedented flooding soon followed, causing over $30bn in economic and infrastructure losses.
The political cost borne by a government of 14 months was unimaginable, but it was worth bearing it if it meant winning back international confidence, Mr Dar said.
‘Unfair to compare’
Planning Minister Iqbal, who briefly took over from Mr Dar, said it would be unfair to compare this government’s performance against the targets of 3.9pc, 5.1pc and 5.9pc it had set, respectively, for agricultural, services and industrial growth last year.
He argued that “this was a year of force majeure,” when the government faced three “unprecedented accidents”.
He listed these ‘accidents’ as a $50 billion carried-forward trade deficit because of ‘irresponsible’ imports of $84bn; lack of disbursements in the last quarter of the previous fiscal year for development projects, which brought forward their cost to the current year; and, finally, the unprecedented climate disaster brought by last year’s monsoons.
IMF review
“Hopefully, the IMF’s 9th review will be completed very soon,” Mr Dar said during his speech, noting that it should have been done by February but was “unnecessarily delayed”.
Responding to a related question about the hike in interest rates and exchange rates over the past year, the minister said monetary policy had been tightened under sovereign commitments and imports compressed to stay current on all international sovereign payments, although he had a “different view” on the matter.
This ‘different view’ was that he believed the country had actually been put into a vicious cycle by devaluation and exchange rate deregulation.
He complained that “hidden hands” were behind the depreciation of the Pakistan currency, and not only him, but international observers also believed the current exchange rate based on the Real Effective Exchange Rate measure should be around Rs240-245 per dollar. “However, market perceptions and the IMF drama have artificially undervalued the Rupee by Rs40-45 against the US dollar,” he said.
‘Artificially undervalued’
Mr Dar urged the Pakistani media to ‘educate’ the people that “our currency is undervalued for artificial reasons that we are trying to address, and hence they [citizens] should not convert their holdings into dollars and gold.
They will be at a loss soon.“ He added that administrative measures were also being taken to stop the smuggling of foreign exchange, wheat and fertiliser, etc, across the border.
The minister conceded that several multilateral agencies had put on hold their disbursements because of the delay in the completion of 9th IMF review. He complained that commercial banks which usually renew their credit were also now sitting on the fence.
Mr Dar said Pakistan had to abide by sovereign commitments, “but it also had a Plan-B”. “Pakistan is not insolvent,” he insisted, adding the country may have $70-100bn in debt, but “we have assets much beyond $3,000bn worth; we have agricultural assets and others. Only one pipeline is worth $40-50bn.”
He said the problem was only of liquidity, which would not have been a challenge had the previous government spent responsibly.
The finance minister said he was not willing to share budget numbers with the IMF until the prime minister desired. He said it was very clear that, whether successful or not, the current fund programme was going to end on June 30. Nonetheless, he hoped the 9th review would be completed successfully, “because we have done more than we were required”, but added that it would be only fair if the next government would decide if another programme is to be negotiated after general elections.
