An economy of contradictions

A day after announcing that foreign direct investment (FDI) in 2014-15 had plummeted by 58 percent to $709 million, the State Bank of Pakistan in its third-quarter report ended up painting a positive picture of the country’s economic situation. The report reflects the contradictory picture that the current government is attempting to paint, with Finance Minister Ishaq Dar’s budget speech claiming that the country’s macroeconomic indicators were now stable still ringing in our ears. The SBP claim was also contradicted by the Pakistan Bureau of Statistics, which reported last week that Pakistan’s exports were at a four-year low of $23.9 billion. The export target for 2014-15 has been missed by around $13 billion and calls into question the PML-N’s so-called ‘Vision 2025’ which promised a six-time increase in exports within the next decade. Actual exports declined by around five percent last year as FDI in the country slashed by half. Which leads us to seriously question the government’s claims of economic recovery.
Despite claims that the Chinese investment is set to change the economic outlook of Pakistan, the FDI this year is the worst in more than a decade. The actual Chinese investment in 2015 was $229 million, three times less than last year. If one steps away from the headlines of the SBP report, the same report shows that domestic investment is in a grim state. Around 96 percent of bank investment is in government bonds, which contributes nothing productive to the economy. The SBP report confirms that banks bought over $1 billion in government bonds, bringing the total government bonds in the hands of banks to around $5.3 billion. The Pakistan Bureau of Statistics claims that the decision of the government to impose Rs830 billion in regressive taxes has made Pakistan’s exports uncompetitive. The SBP report goes against the evidence to claim that monetary easing and CPEC investment are cause for celebration. Similarly, the SBP says the import of LNG and low international oil prices will facilitate the economy. Almost bizarrely, it has pointed to the growth in the construction sector and private residential projects as ‘positive’ indicators. Anyone with an understanding of the global economy should know that housing price increases cause economic bubbles, unless they are accompanied by a genuine increase in the productive base of an economy. The SBP admits low growth in the commodity producing sectors of agriculture and industry. This means that despite what the SBP and the federal government say, the Pakistani economy is a long way away from recovery.