Dismal economic performance

Economic management of the entire term has been in a reactive, firefighting mould.

While the opposition parties have begun to unfold their economic manifestoes, the government will have to face the electorate with the record of its performance since 2008. The report card here is an unusual one. This is the first democratically-elected government that is likely to complete a constitutionally mandated full term. However, the government did not articulate anything remotely resembling an economic programme or strategy. Coalition governments have their difficulties but the world is full of examples of common minimum programmes. However, not so in the Islamic Republic of Pakistan.

The lead coalition party, the PPP, shelved its manifesto soon after coming into power. The occasional noises made by the junior partners, especially, the MQM, have been just that — noises. The ANP is as far removed from the ideas of Wali Khan as the PPP is from its foundation papers. In the current battle of manifestoes, the point to ponder is that a government will have ruled for five years without any attempt to set the direction of economic change. Starting with a disastrous speech by Mr Ishaq Dar as finance minister, the first year passed in damning the economic legacy of General (retd) Pervez Musharraf. The global financial crisis and recession provided an alibi in the following year. Natural disasters like the floods and external factors such as oil price hikes of 2010 came handy as explanations of economic retardation. Since 2011, the economic paralysis of the government has been blamed on judicial activism. Finally, the deteriorating security situation is billed as exogenous to the government.

Be it a new Marshall Plan, trade not aid, or the so-called new growth strategy, rhetoric has dominated action. Indeed, economic management of the entire period has been in a reactive, firefighting mould.

One need not raise one’s eyebrows if all economic indicators are looking downwards. Fiscal deficit, an indicator of the financial health of the economy, averaged 6.7 per cent in the past four years. Wisely used, deficits can boost the real sector. The GDP — the index of improvement in the real sector — grew at a pitifully low rate of 2.9 per cent, less than half of the achievement in India, Bangladesh and Sri Lanka. Just above the still high population growth of 2.1 per cent, the growth rate translates into very little increase in the income per capita. Manufacturing — the dynamic sector of a developing economy — contributed only negative to negligible growth. In the outgoing fiscal year 2011-12, the growth of large-scale manufacturing is 1.2 per cent, which is even lower than the low figure of 1.8 per cent announced at the time of the budget for 2012-13.

Fiscal deficits without economic growth led to debt accumulation and inflation. Debt is approaching the prohibited zone of 60 per cent of GDP. The inflation rate in the last four years has been as high as 12.9 per cent. Perhaps, for the first time in its history, the country experienced double-digit inflation for five years in a row. High fiscal deficits reflect failure to achieve a desired tax-to-GDP ratio, which has averaged below 10 per cent. Low GDP growth arises from low local as well as foreign investment. Gross fixed investment has almost halved since 2007-08. An almost doubling of remittances, in spite of — not because of — the government has provided some respite to the precarious balance of the external sector.

Judged by the standard economic indicators, the performance of the coalition government of the PPP, the MQM and the ANP in the past four years has been dismal. And although a late entrant, the PML-Q cannot absolve itself of the responsibility for bringing the economy to the edge of a precipice.

Published in The Express Tribune, September 7^th, 2012.