- Former BOI chief Haroon Sharif says budget is a clear reflection of Pakistan’s policy priorities, devoid of a medium or long-term vision
ISLAMABAD: The Federal Budget 2019-2020, as well as the government’s economic policies, will have disastrous consequences for Pakistan’s middle-income groups, who are expected to face a 40pc compression in disposable income.
This was the key takeaway at the Jinnah Institute’s policy roundtable, titled, ‘Austerity Budget: Assessing the Impact on Development and Pro-poor Growth’. The roundtable was moderated by Planet N Group CEO Nadeem Hussain.
Former Economic Advisory Council member Sakib Sherani on the occasion shared Pakistan’s macroeconomic indicators, highlighting the accumulated financing gap over previous years.
He noted that the rising current account deficit and an overvalued rupee have resulted in a severe debt trap. Simultaneously, he added, the formal economy, which generates investment, tax revenue and employment, was shrinking in size.
He also informed that Pakistan’s exports, which currently stand at 8pc of GDP, were the lowest among all emerging markets and constitute a dwindling portion of Pakistan’s GDP.
“Overvaluation of the rupee over the last five years has meant that Pakistan ran a huge current account deficit, the largest in all emerging markets, and the rupee has been falling because the external financing gap was over $23 billion in 2018. This is the first time that Pakistan has started facing a currency crisis of the magnitude experienced in Argentina and Zimbabwe,” he maintained.
Sherani stated that despite periodic and short-lived success at macro stabilisation, the environment for the long-run economic growth remained challenging. “Stabilisation is a necessary condition, but not a sufficient one.”
Academic Dr Faisal Bari said that the government was underestimating the consequences of the Budget 2019-2020.
“Jobs are vanishing, inflation is hitting the people very hard and utility prices are pushing people in debt. There is absolutely no guarantee that some years of pursuing stabilisation policies led by any government will yield benefits or create a growth path.”
He said Pakistan needed over 7pc sustainable growth but there was little appetite for the kind of institutional arrangements and policies required to make that growth occur. “As the citizens are enduring the pain of stabilisation, it is expected that some relief will be afforded to them eventually, but the level of competence to bring about systemic overhauls across the system leaves little room for optimism.”
In the meanwhile, he stated, people would continue to experience difficulties caused by the vicious cycles of stabilisation that outrun the government’s term.
Dr Bari said that other countries in the region like Bangladesh and Sri Lanka had made critical investments in human capital and social sectors.
“Even if Pakistan were to enable growth trends internally, do we have requisite human resource and skills available to take growth forward?” he asked.
Dr Ijaz Nabi, a member of the Economic Advisory Council, also drew attention to the economy’s structural problems that create inconsistent growth patterns, and regular trends of regression after momentary stabilization.
He recalled that many economies of the far east found their wealth disappear in a matter of months after the Asian financial crisis, and resorted to lending from the IMF. He said there have been similar moments in Pakistan’s economic history, like in 1971, when the rupee had crashed but the economy found other ways of bouncing back.
He stated that without addressing economic fundamentals, such as gross systemic inefficiencies and corruption across institutions, there was little chance that governments would be able to break out of the stabilisation rut it finds themselves in.
“Pakistan too must realise that its governmental expenditures outstrip its capacity to raise revenue and lending from the IMF becomes inevitable,” he added.
Former Board of Investment chairman Haroon Sharif observed that the budget was a clear reflection of Pakistan’s policy priorities, devoid of a medium or long-term vision.
“The current budget is geared towards stabilisation and social protection measures. Business interests dictate the drafting of budgets whose review process is poor and there is a clear elite capture over budgetary approvals.
“The allocations made for social protection reflect the government’s intention to undertake ‘corporate social responsibility’ encouraged by IFIs, with no real plans to alleviate poverty or tackle issues that necessitate social safety or financial inclusion.”
He said the Benazir Income Support Programme was known to assist poor households but should not be taken as a sufficient measure to address Pakistan’s rampant poverty.
Sharif stated that the decisionmakers must consider the strategic opportunities for stabilisation provided by CPEC and think of ways Pakistan can enable growth in key sectors with critical investments in human capital.
“It is essential that we conceive the kind of economy we want and develop competencies to achieve that objective,” he concluded.