Development update or downgrade?
In the latest Pakistan Development Update, Pakistan is advised to accelerated economic reforms to speed up growth
pervez.tahir@tribune.com.pk
While the World Bank is celebrating 15 years of its report monitoring the ease of doing business, claiming that reforms have improved business climate worldwide, Pakistan has moved a few notches down on the index. In the latest Pakistan Development Update, Pakistan is advised to accelerated economic reforms to speed up growth and bring more stability by addressing twin deficits. The advice comes at a time when the country is going through a difficult political transition. The main opposition leader picked it up in a tweet to say that Pakistan would miss all key macro targets. In the present charged atmosphere, the idea of a non-democratic technocratic set-up has been floated to do precisely what the World Bank is saying. Elected governments, according to the proponents including some ex-World Bankers, lack the will and the capacity to reform.
Talking of reforms in the last year of a government anywhere in the world is silly. Just before elections, most governments focus on winning votes. Pakistan is no exception. As for missing targets, this is not the first time it has happened. Targets set by all governments in Pakistan are ambitious and they are routinely missed. They were missed in the first year, the third year and now. So, to pick up this year for missing targets smacks of motives other than aiding the understanding of the economic situation.
Take the first key indicator, GDP growth rate. In 2016-17, it was 5.3 per cent, the highest for the decade. In 2007-08, the growth rate was 5 per cent. Elections were held in the third quarter. In the following year, the growth rate nosedived to 0.4 per cent. In 2017-18, again an election year with a lot more uncertainty, the World Bank says that the growth rate is likely to be 5.5 per cent. The point that it is higher than the previous year is lost in the noise of missing the target of 6 per cent. In 2018-19, the year after the elections, the Bank forecast is 5.8 per cent, not a crash. What then is the pother about?
According to the World Bank, fiscal deficit turned out to be 5.6 per cent against the revised estimate of 4.2 per cent in 2016-17. The government places it higher at 5.8 per cent. Now this is connected with the achievement of a GDP growth rate of 5.3 per cent. Development expenditure, the major driver of growth as private investment has not yet picked up enough, used up 5.3 percentage points of the fiscal deficit of 5.8 per cent. For 2017-18, the Bank expects it to reach 5.9 per cent. In reality, it will be much more, as the government lets loose the purse strings in an attempt to woo voters. Once again, it is typical of democracies. The difference is that the present political transition is likely to leave a smaller deficit than the previous transition year of 2012-13.
Finally, the current account. The main problem here is the unsustainable imbalance between imports and exports. Remittances, official and FDI flows are falling short. The government is doing what it has always done in such situations — short-term commercial borrowing to roll over debt. The relevant signals are not in danger zone, though. Devaluation of the rupee is too much to expect from a government going into elections. The strong revival of exports and large-scale manufacturing in the first quarter, together with investment-oriented imports, keep the hope of growing out of trouble alive. A stable and inclusive growth in the long term requires the political fundamental of democratic continuity, not an extra-democratic surgical strike to fix economic fundamentals.
Published in The Express Tribune, November 17th, 2017.
Talking of reforms in the last year of a government anywhere in the world is silly. Just before elections, most governments focus on winning votes. Pakistan is no exception. As for missing targets, this is not the first time it has happened. Targets set by all governments in Pakistan are ambitious and they are routinely missed. They were missed in the first year, the third year and now. So, to pick up this year for missing targets smacks of motives other than aiding the understanding of the economic situation.
Take the first key indicator, GDP growth rate. In 2016-17, it was 5.3 per cent, the highest for the decade. In 2007-08, the growth rate was 5 per cent. Elections were held in the third quarter. In the following year, the growth rate nosedived to 0.4 per cent. In 2017-18, again an election year with a lot more uncertainty, the World Bank says that the growth rate is likely to be 5.5 per cent. The point that it is higher than the previous year is lost in the noise of missing the target of 6 per cent. In 2018-19, the year after the elections, the Bank forecast is 5.8 per cent, not a crash. What then is the pother about?
According to the World Bank, fiscal deficit turned out to be 5.6 per cent against the revised estimate of 4.2 per cent in 2016-17. The government places it higher at 5.8 per cent. Now this is connected with the achievement of a GDP growth rate of 5.3 per cent. Development expenditure, the major driver of growth as private investment has not yet picked up enough, used up 5.3 percentage points of the fiscal deficit of 5.8 per cent. For 2017-18, the Bank expects it to reach 5.9 per cent. In reality, it will be much more, as the government lets loose the purse strings in an attempt to woo voters. Once again, it is typical of democracies. The difference is that the present political transition is likely to leave a smaller deficit than the previous transition year of 2012-13.
Finally, the current account. The main problem here is the unsustainable imbalance between imports and exports. Remittances, official and FDI flows are falling short. The government is doing what it has always done in such situations — short-term commercial borrowing to roll over debt. The relevant signals are not in danger zone, though. Devaluation of the rupee is too much to expect from a government going into elections. The strong revival of exports and large-scale manufacturing in the first quarter, together with investment-oriented imports, keep the hope of growing out of trouble alive. A stable and inclusive growth in the long term requires the political fundamental of democratic continuity, not an extra-democratic surgical strike to fix economic fundamentals.
Published in The Express Tribune, November 17th, 2017.