Issues critical to economy remain ‘unaddressed’

ISLAMABAD:

While claiming to have stabilised the economy and restored law and order, the government has candidly admitted its failures on the economic front during its first half of the five-year constitutional term.

For the first time, the government has publicly said the rupee has been “overvalued” against the US dollar. The current rupee-dollar parity is around Rs105.

In its half-term performance review from June 2013 to December 2015, the planning ministry has admitted the issues critical for sustainable economic growth and reducing unemployment remain unaddressed.



The review by the country’s chief economist, Dr Nadeem Javaid, presented to the federal cabinet ministers and top bureaucrats, was close to reality but different from what Finance Minister Ishaq Dar, the government’s economic czar, has been claiming.

“The success has largely been in stabilising the economy but the structural challenges remain,” said Federal Planning and Development Minister Ahsan Iqbal while sharing his government’s performance.

Ahsan said the restoration of law and order in Karachi and Operation Zarb-e-Azb were among the main achievements of the current government. The launch of the $46-billion China-Pakistan Economic Corridor, the long-term Vision 2025 plans and the US-Pakistan Knowledge Corridor were the high points of his government.

The government also brought about predictability and stability in power load management. The planning ministry projects by January 2018, the country will have 1,811MW surplus electricity as against the current 5,000MW shortfall.

While giving an overview, Dr Nadeem said an overvalued currency was playing a role in keeping exports down. He said the rupee had depreciated about 7% and there was a possibility the rupee-dollar parity would further correct to show its real value, which would boost exports.

Unlike the planning ministry, the finance minister believes the rupee is undervalued and its value should be around Rs102 to a dollar.



Contrary to Dar’s assertion that exports were plunging because of low commodity prices in the international market, Dr Nadeem highlighted the factors that indicate that the ministries of finance and water and power were largely responsible for the negative growth in exports.

“The exports have plunged due to the energy crisis, overvalued rupee, burdensome taxation and regulatory duties, liquidity crunch due to pending tax refunds and declining private sector credit,” he pointed out. He added, however, that declining international commodity prices was just another factor.

Dr Nadeem also noted with concern the negative growth in the private sector despite the historically low interest rates. Savings and investments, which are considered a source of sustainable economic growth, are not growing at the desired pace, falling short of yearly targets. But the figures are better than the 2012-13 position.

He said the negative growth in foreign direct investment was another area of concern, which stood at a mere $216 million during the first quarter of current fiscal year. The government has added Rs3.2 trillion in public debts during the past two years. However, in terms of the total size of gross domestic product, the public debt has partially reduced to 63.5% of the GDP from June 2013 level of 63.9%. It was still above the statutory limit of 60%.

The planning commission has mentioned growing unemployment as the top most challenge for the government. The chief economist said at the existing growth rate, the country cannot absorb the youth bulk and unemployment may increase to 7.93% by June 2018. There will be 5.4 million unemployed youth by then.


Published in The Express Tribune, December 9^th, 2015.