Economy – looking beyond numbers

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In his speech to a gathering of greater than 60 enterprise leaders from throughout Pakistan final week, Prime Minister Imran Khan gave an total account of financial progress beneath the Pakistan Tehreek-e-Insaf (PTI) rule.

He talked about numerous “historical records” – exports of $31 billion, remittance flows of $32 billion, tax assortment exceeding targets, large-scale manufacturing development of 15%, company revenue of Rs930 billion, personal sector credit score of Rs1,138 billion, IT sector exports of $3.5 billion, and eventually inflows of Rs1,100 billion into the agricultural financial system.

On the outset, all of those numbers might be verified as right. The satan, as they are saying, lies intimately. Let’s take exports. The sharp improve within the greenback worth of exports has created an inaccurate notion that the insurance policies are lastly delivering.

For instance, the policymakers have interpreted the year-on-year improve of 28% within the greenback worth of textile exports through the first 5 months of fiscal yr 2021-22 as proof that present subsidies such because the preferential power tariff have been profitable in assembly their supposed goal.

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On a cautious look, and opposite to the notion of policymakers, the unbiased Financial Advisory Group (EAG) finds that the rise in greenback worth of exports has little to do with these insurance policies.

One of many EAG members, Ahmed Pirzada, has used the publicly accessible information on textile exports to decompose the rise in greenback worth of textile exports into value and amount results. The evaluation exhibits that out of the $1.7 billion improve in textile exports throughout Jul-Nov 2021, greater than two-thirds is just attributable to a rise in worldwide costs. In different phrases, had worldwide costs remained the identical as within the earlier yr, the greenback worth of textile exports would have elevated by solely 7.8%. Modifications in world financial circumstances have additionally performed an necessary function in driving the quantum of exports.

For instance, the drop in world financial exercise throughout Covid led to a 25% drop in exports relative to the pattern. Nonetheless, the sharp restoration in world financial exercise since then has had a constructive impact on Pakistan’s export efficiency throughout most of fiscal yr 2020-21. Let’s take up remittances. It must be acknowledged that rising the stream of remittances has been very useful for Pakistan to handle its present account deficit.

Alternatively, it’s properly argued that it acts because the Dutch Illness, whereby windfall income positive factors can erode or cut back a rustic’s competitiveness.

The overflow of remittances can result in a rise within the Actual Efficient Change Charge, lowering commerce competitiveness. It additionally reduces the stress for reforms, particularly within the space of taxation and tariffs. This level wants cautious empirical examination.

Now take taxes. It’s true that the Federal Board of Income (FBR) has exceeded the tax assortment goal by Rs282 billion. Nonetheless, the contribution of earnings tax to this improve is just Rs5 billion and the stability primarily comes from gross sales tax on the import stage and customs obligation.

By way of income collected on the import stage, and its share within the complete tax income, Pakistan might be on high of the world. It’s not solely regressive but additionally creates money stream drawback for the business.

There isn’t any doubt that large-scale manufacturing exercise has picked vital tempo, and that’s one thing we have to respect. The personal sector credit score offtake can also be displaying progress. Equally, IT sector is performing properly, which is contributing to development and job creation. Additionally, the expansion within the agriculture sector has elevated rural earnings significantly, although its distributional results must be examined.

The place the prime minister and his workforce have to pay extra consideration is job creation and improve in actual earnings, which comes on the again of productiveness. Whereas listening to the PM’s speech, I realised that whereas the federal government spends appreciable time explaining how Ehsaas – the social safety programme with a price range of Rs260 billion – helps the low-income class, it glosses over big-ticket gadgets. Pakistan must create much more jobs, and extra well-paying jobs than it’s doing now. Alternatives might be created by aligning incentives with effectivity and productiveness. We shouldn’t be content material with simply a rise within the degree of manufacturing – whether or not within the variety of vehicles or amount of crops. Whereas these will increase are useful, the true earnings will rise by remodeling our method of doing authorities – and enterprise, and by rising productiveness.

It’s not about leaving agriculture and leaping to the IT bandwagon. It’s doing higher in no matter we produce – and to start with – from agriculture and agro-based merchandise. That’s the play of each the federal government and the personal sector.

The author is founder and govt director of PRIME, an unbiased assume tank primarily based in Islamabad


Revealed in The Categorical Tribune, January 17, 2022.

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