Economic gimmicks

LAHORE: Pakistan’s exports dropped 15 percent, while the revenue collection fell short by Rs39 billion of the target for the month of August. Does it mean the bubble, created in July, showing an ‘economic turnaround’ at the completion of two years of the government, has burst?

Last month the ruling elite raised the euphoria around the revival of economy as the exports in July increased around 6 percent and the Federal Board of Revenue (FBR) collected Rs57 billion above the tax revenue target fixed for that month.

On the top of it, remittances reached historic high adding almost $1 billion additional foreign exchange compared with last fiscal. Moreover, the cement uptake increased 37 percent in July indicating revival of construction sector.

The government claimed the turnaround became possible due to its policies. This one-off high performance was against the general economic trend of other economies of the country.

Most sane analysts kept their fingers crossed but hoped this trend would continue for the rest of the fiscal year.

Exports data for August, released by the Pakistan Bureau of Statistics, show exports declining 20 percent compared to the first month of this fiscal.

The decline was 14.80 percent when compared with exports during the same month last fiscal. Now the Advisor to the Prime Minister on Commerce and Trade is lamenting the decline was due to disruption of supply chain due to heavy rains in the country, particularly in Karachi.

It is worth mentioning that this government does not take responsibility of any bad news regarding economy. It puts the blame either on past governments, global recession, weather conditions, or pandemics. This government desires things to happen on their own.

Did its economic managers ever take any measures to strengthen the supply chain? Was Karachi not in shambles before the rain? The already weak infrastructure of the coastal city crumbled after rains.

The tax collection in July was the best the FBR has ever achieved in the first month of any fiscal. The government attributed it to the efforts of new FBR team inducted a month back.

If that was so, then revenues should have continued to increase in August; however, the target was missed by Rs37 billion. Still, the surplus from the previous month ensured a collection of about Rs19 billion above the first two months’ target. How it fares in September would determine whether the IMF would have us levy new taxes or not. Let us hope that remittances keep their momentum.

The construction boom is not anywhere around the corner. The domestic uptake of cement was less than 4 percent in August compared to over 30 percent in July. The decline in consumption could be attributed to bad weather but the more alarming thing is that the cement consumption in Sindh and Balochistan has declined both in July and August. This indicates the lopsided growth pattern in the country needs to be addressed on immediate basis.

The unemployment bomb would continue to tick until the construction sector was taken to a higher level.

This government takes credit for reducing the trade deficit. But the entire decline in trade deficit has come from reduction in imports. In the first two months of this fiscal the exports registered a decline of 4.27 percent, while the imports decreased 6.28 percent.

Our trade deficit of 3.66 billion in July August is almost equivalent to our exports of 3.74 billion during this period. This means we will have to double our exports to wipe out the trade deficit.

The efforts should be made in this direction as higher exports would create huge employment opportunities as well. This government did a good job by discouraging unnecessary imports in its first year in power. Now it has gone too far. Lower import bill is also associated with fewer imports of machinery and industrial raw materials. It has compromised our growth. We are in the second straight year of negative growth. It is not sustainable.

Power sector inefficiencies are the greatest threat to our economy. This government claimed the circular debt (mainly due to power theft and non-collection of energy bills) would be reduced from Rs30 billion/month (during PML-N regime) to Rs12 billion/month.

Instead the circular debt ballooned to over Rs44 billion/month that translated into Rs560/year. The power tariff has hiked by 50 to 60 percent but the theft has not decreased in percentage terms, while the graft has multiplied in accordance with the increase in tariff.