INSIGHT
The declining exports, home remittances and foreign direct investment (FDI) are making the struggling economy vulnerable; while the slow pace of implementation on China-Pakistan Economic Corridor (CPEC) can cause problems in achieving the much trumpeted two to 2.5 percent additional GDP growth in the next 15 years.
The alarming 30 percent decline in exports in July this year, coupled with 20 percent reduction in home remittances poses a threat to $22 billion foreign exchange reserves, which mainly include $12 billion external borrowing.
Things are further getting soar because of the alarming decline in FDI which recorded an incredible 77 percent reduction since 2014. Then there is a sharp increase in total debt and liabilities, which now stand at Rs20 trillion and are feared to rise to Rs22.5 trillion by June next year. This is another serious issue that needs to be looked into by the policy makers, led by Finance Minister Ishaq Dar.
“The economic picture is mixed but the external side is very scary due to decline in exports and home remittances,” said former prime minister’s advisor on finance and economic affairs Dr Hafiz Pasha.
He said Pakistan’s decreased earning through exports and home remittances would create problems in the next two years in terms of making debt repayments. “This government has borrowed $8 billion which is highest in the history of Pakistan,” he said, adding that it was becoming difficult to retire foreign debt on time due to constant decline in exports and home remittances without which the country cannot sustain.
Dr Pasha was critical over the slow pace of CPEC infrastructure projects – transport, railways and Gwadar connectivity with other areas – which had been designed by the Planning Commission of Pakistan, and added in the Public Sector Development Programme (PSDP).
“The federal government has so far spent only Rs3 billion instead of Rs11 billion as most of the projects related to CPEC are still in the feasibility stage which ironically had been approved by the Planning Commission,” lamented the renowned economist.
This delay, he pointed out, was increased the cost of the CPEC projects by 20 percent, and if no notice was taken by the government, the total cost would go further up.
The $46 billion CPEC project was a great initiative, for which the feasibility studies should be finalised immediately. The projects formed part of seven percent PSDP and Pakistan could not afford any delay in the implementation of these infrastructure projects, he added.
“But my real worry is that Chinese financial contribution (foreign assistance) in these projects is only 30 percent and the government must come clean how will it raise funds to timely complete this mighty undertaking which is good and essential for Pakistan,” he said.
Generally it is believed that the growing political ambivalence further fuelled by the mess created by Altaf Hussain’s diatribes has once again pushed the economy to the edge of massive imbalance. The Nawaz Sharif government is essentially reactive and seems to be busy in fire-fighting to get itself off the hook with regards to Panama Leaks and other corruption charges. And in the process the economy continues to suffer.
The government has been facing criticism for not completing the much needed and the much talked about restructuring of the energy and taxation reforms – the two many elements causing haemorrhaging to the national exchequer.
The government has distributed Rs21.44 billion cheques of sales tax funds to the exporters and plans to further make payments to reduce the outstanding amount of Rs100 billion refunds. The sales tax refunds are said to have reached over Rs150 billion and in the absence of their payments, exporters, said they were unable to enhance the declining exports.
Dr Hafiz Pasha
Economist
“This government has borrowed $8 billion which is highest in the history of Pakistan. The federal government has so far spent only Rs3 billion instead of Rs11 billion as most of the projects related to CPEC are still in the feasibility stage which ironically had been approved by the Planning Commission.”
Shabir Ahmed
PBEA Chairman
“This is a good beginning by the prime minister. Making payment of sales tax refunds, which is not Rs100 billion but Rs300 billion. There is no textile minister, and the ministry of commerce requires drastic changes to help stop the declining exports and rising imports.”
Ashraf Mehmood Wathra
SBP Governor
“There is no need to be alarmed over some slowdown in home remittances which was witnessed in the month of July this year. It happened due to Eid as overseas Pakistanis sent most of their money in June. Obviously they then remitted less money in July. We must remember this dip always comes before Eid.”
Dr Ashfaque Hasan Khan
NUST Social Sciences Dean
“Dar sb is leaving behind him land mines of unprecedented external debt and who knows when this government goes. Overwhelming consensus today is that it was not the IMF’s traditional programme but a US programme that was worked out in the light of the US interests in the region.’
“This is a good beginning by the prime minister. Making payment of sales tax refunds, which is not Rs100 billion but Rs300 billion,” said Pakistan Bedwear Exporters Association (PBEA) Chairman Shabir Ahmed. There was no textile minister, and the ministry of commerce required drastic changes to help stop the declining exports and rising imports, he added.
However, Governor State Bank of Pakistan Ashraf Mehmood Wathra is optimistic and says all is not too bad and that the people need to see both sides of the picture with regards to exports, home remittances and foreign exchange reserves.
“There is no need to be alarmed over some slowdown in home remittances which was witnessed in the month of July this year. It happened due to Eid as overseas Pakistanis sent most of their money in June. Obviously they then remitted less money in July. We must remember this dip always comes before Eid.”
He was hopeful that the government would achieve $20 billion home remittances target during the current financial year, compared to $19.9 billion achieved in 2015/16.
Wathra does not see any problem in receiving a lesser amount of remittances from the United States and United Kingdom. “There is some reduction in remittances from Saudi Arabia where local Saudi companies have laid off about 9,000 Pakistani workers. But I am sure we will achieve our target of having $5 billion home remittances from the Kingdom,” he said.
“My real worry are the declining exports and FDI and not the home remittances,” the articulate Wathra said. He was also not worried about certain decline in home remittances from UK due to Brexit. He said the central bank has been warning in its annual and quarterly reports about declining trends in exports and rise in imports that always created balance of payment problem.
“You don’t need to be pessimistic about the current economic situation which is regularly being monitored by both the ministry of finance and the central bank. Therefore, I am optimistic and see large scale improvements in the economy.”
However, former special secretary to the ministry of finance and now Dean of Social Sciences in National University of Science and Technology (NUST) Dr Ashfaque Hasan Khan does not believe that all was as well as the government claimed every now and then.
“Dar sb is leaving behind him land mines of unprecedented external debt and who knows when this government goes. How will the next government deal with the issue?” he asked.
He said that the IMF gave a political and not an economic bailout package worth $6.67 billion of Extended Fund Facility (EFF) at the behest of the United States. “Overwhelming consensus today in the country is that it was not the IMF’s traditional programme but a US programme that was worked out in the light of the US interests in the region,” he claimed.
He said had the US government not taken a congress route, Pakistan could not have been bailed out through the IMF. He questioned the holding of all the 11th reviews of the Pakistani economy in a third country (Dubai) and said Pakistan was the first country in the world which received a large number of waivers and the Fund officials never bothered about what he termed “exaggerated economic numbers”.
The government always asked the Federal Board of Revenue (FBR) and other departments including statistician division to give manipulated economic figures to show higher growth particularly that of 4.7 percent in 2015/16.
The government needs to check 20 percent decline in home remittances - $1.66 billion of July last year to $1.33 billion of July this year - and whether the trend could be improved in the coming months. Similarly, there is a need to check the massive 77 percent decline in FDI, from $4.4 billion in 2014 to just $952 million in 2016. About 30 percent decline in exports was recorded, which is another serious issue. Exports stood at $2.1 billion in July last and came down to $1.5 billion in July this year. People within the ruling party say that the prime minister should give more time to the economy to face 2018 elections with some concrete achievements, failing which, the political scenario could be different.
The writer is a senior journalist based in Islamabad
