The PPP’s terrible economic performance

Economic situation is grim, to say the least and there is a general perception that situation is unlikely to improve.


Zubair Mohammad November 06, 2012

In my last column, I briefly mentioned the dismal economic performance of the present PPP government. After the article was published, many of my PPP friends called and challenged the basis of describing the economic performance dismal. Under what rationale they questioned the bad performance is not clear to me. The PPP’s performance has not just been bad but dismally bad and I would call it the worst economic performance by any government since our independence. The following macro-economic indicators will demonstrate my point.

GDP growth: Average GDP growth during 2008-12 has been 2.9 per cent. Never in our history has the growth for any four-year period been so low. Let us compare Pakistan’s GDP growth with other countries in the region during the same period, which were as follows: India 7.8 per cent, Bangladesh 6.8 per cent, Sri Lanka 6.1 per cent and Pakistan 2.9 per cent. Most economists would agree that in order to progress and for people to survive above the poverty line in Pakistan, nothing less than a six per cent sustainable growth rate is required.

Inflation: Except for the last two to three months, inflation has remained in double digits during the entire period of this government. Looking at this from a historical perspective, this has been the second worst period since 1947, as far as inflation numbers go. Only once in our history we had a higher inflation over a four-year period and that was during the first PPP government in 1972-77. Compared with us, India had single-digit inflation throughout much of the same period. Pakistan’s economic managers cannot complain of high oil and other commodity prices for its high inflation numbers.

Tax-to-GDP ratio: When the PPP came in power in 2008, the tax-to-GDP ratio was 10 per cent and the plan was to increase it by one per cent each year so that by 2013 it would be a healthy 15 per cent. At present, the ratio is less than nine per cent, which would rank Pakistan among the worst in the world. This helps explain why the present government has been unable to deliver in terms of investment in social sectors and infrastructure projects. There is no rocket science here — you either increase the revenue side or reduce the non-development expenditure or ideally a combination of both.

Budget deficit: Last fiscal year, the budget deficit was at an all-time high of approximately seven per cent but even more alarming is the forecast for the present fiscal year, which is expected to see a budget deficit in the range of eight to nine per cent. What does that mean for the economy? In terms of actual rupees, it means a deficit of more than two trillion, which will largely be filled in through borrowing from the central and commercial banks. It has adverse effects too. This will crowd out the private sector simply because the commercial banks would not have much to offer to the private sector and in any case, it is much easier to lend to the government without taking any risk.

Investment-to-GDP ratio: In 2008, this was 23 per cent, which has now come down to 12.5 per cent — the worst for more than 30 years. A 10 per cent drop in this ratio simply means approximately 20 billion dollars in terms of lost investment.

The numbers speak for themselves. All other indicators are also negative. Public debt has more than doubled in the last four years. State institutions such as Pepco, PIA, the Railways and the Pakistan Steel are all making huge losses (around Rs400 billion every year). Pakistan is facing the worst energy crisis in its history and no improvement is evident. The privatisation process is almost at a standstill.

The economic situation is grim, to say the least and there is a general perception that the situation is unlikely to improve, since no structural reforms are planned and in any case, it is too late to initiate any such reforms.

With such a miserable economic performance, any chance of the PPP being returned to power in the next election looks almost impossible.

Published in The Express Tribune, November 7th, 2012.

COMMENTS (23)

ishrat salim | 11 years ago | Reply

@Shazia:

Which profit organisation ?...pls indicate...is there any organisation which is making profit today ?..if so, how does a poor guy gets to know what profit that organisation made & what is his share ? & how does he get it ?

ishrat salim | 11 years ago | Reply

@Aviator:

PPP won on sympathy vote after BB killed.....

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