Musa Virk |
PMLN leader, Muhammad Zubair living up to his reputation of misrepresenting and twisting facts, had written an article, shamelessly accusing PTI of the economic mess left by them. The article was based on logical fallacies and misrepresentation of facts– which has always been their [PML-N’s] forte.
The current account of a deficit of Pakistan was $2.3 bn in the Financial year 2012-13 which increased to $19 bn in the Financial year 2017-18. Similarly, the trade deficit increased from $16 bn to $37 bn in the last 5 years. The circular debt was left at Rs 1200 billion.
Just after 6 months of PTI government, the current account deficit is on the decline which was increasing at a pace of $2 billion per month; the trade deficit decreased by $900M in last 6 months.
The domestic debt of government was Rs9 trillion in 2013 and PML-N added another Rs7.3 trillion in the last 5 years, which means 80% of the debt in country’s history before their government. Similarly, they added 47% or $25 bn of existing government’s external debt and left it at $78 bn.
It is appreciable that Muhammad Zubair is finally admitting the mess they left for the incumbent government and showing his concern. However, Prime Minister Imran Khan is very much aware of this legacy of PML-N; he had been talking about this throughout the election campaign.
Just after 6 months of PTI government, the current account deficit is on the decline which was increasing at a pace of $2 billion per month; the trade deficit decreased by $900M in last 6 months. The remittances and exports are also increasing gradually.
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The increase of Rs2.26 trillion in government debt during the 5 months from July-Nov 2018 is large because of the devaluation effect; the actual internal and external debt taken by the government in these 5 months is less than the corresponding period of last year.
The model of GDP growth in Pakistan was import financed consumption and debt inflated government spending. This Dutch disease with subsidized imports overvalued currency and increasing domestic government borrowing left us with record twin deficits problem and was not sustainable.
The State Bank of Pakistan policy rate increased from 5.75% to 7.5% between Jan-Aug 2018. So the increase was already triggered due to rising inflation from the start of the year.
PTI government rationalized the fiscal spending. There is a temporary contraction in the economy to control consumption and current account deficit but the priority is focusing on export-led growth and encouraging new investments to increase domestic productivity and value addition.
The PTI reforms package was aimed at these precise targets and to offset the contraction towards more sustainable growth and expansion.
From the total revenue, 60% comes from indirect taxes and only 40% from direct taxes while 68% of the direct tax is collected as withholding tax. So only 12% of the total revenue is what the FBR actually collects. In 5 years PML-N completely failed to reform the institution.
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Mr. Zubair said that inflation rate remained in single digits and under 5% throughout their tenure which is not true. After 6 months of PML-N govt, the inflation rate raised from 5.1% in May 2013 to 10.9% in Nov 2013. In their first 16 months, the inflation rate didn’t come under 7%.
He maintained that credit ratings throughout their tenure only improved. In Jan 2018 Fitch downgraded Pakistan’s rating to B, negative from stable and in June 2018 when they left the country in record deficits, Moody’s downgraded Pakistan’s rating to B3 negative from stable.
In May 2017, Pakistan was included in Morgan Stanley Capital International’s (MSCI) emerging markets. In anticipation of this move, a bubble was created and Pakistan Stock Exchange touched the peak of 52k but after that, it couldn’t sustain the trend and fell sharply to 40k by the end of 2017 making it the worst performing market in Asia, all under the PML-N government.
Ishaq Dar with his rigid policy on exchange rate not only borrowed billions of dollars to keep it overvalued but also wasted the forex reserves. As a result, exports showed an overall decline in the last 5 years.
In 2018 after US Fed rate increased it triggered capital outflow from Asian emerging markets for the first time since the Global Finance Crisis (GFC) in 2008. However, since the start of 2019, the KSE index increased by 12% and recovered all the value lost in 2018.
The public sector organizations recorded a loss of Rs1200 billion and PTI is indeed privy of the situation; PML-N with a majority in joint parliament houses couldn’t take any decision in 5 years, while PTI government is making a holding company Sarmaya Pakistan for the PSEs.
The State Bank of Pakistan policy rate increased from 5.75% to 7.5% between Jan-Aug 2018. So the increase was already triggered due to rising inflation from the start of the year.
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PTI took some important fiscal and other decisions which were deliberately delayed such as electricity and gas tariffs so the policy rate was increased further to control inflation. In the first 2 years of their government, PMLN also kept it at 9-9.5% due to inflation.
The trend in exports shows that apart from other local productivity and competitiveness issues when the real effective exchange rate of Pakistan increased from 104 in 2013 to 127 in 2017, Pakistan’s export decreased from $25 B to $20B in this period.
When Rupee was devalued and Real Effective Exchange Rate (REER) came down to 113 in FY18 exports started to grow. Ishaq Dar with his rigid policy on exchange rate not only borrowed billions of dollars to keep it overvalued but also wasted the forex reserves. As a result, exports showed an overall decline in the last 5 years.
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In a bid to win elections PML-N bankrupted the economy and now taking recourse to intellectual dishonesty to camouflage their damage.
Musa Virk is Information Systems graduate from Victoria University Melbourne and working as ICT Business Analyst in Australia. The views expressed in this article are author’s own and do not necessarily reflect the editorial policy of Global Village Space.