Pakistan’s Economic Outlook in 2018

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This year of 2018 is awfully leaving the country with a structural Macro Economic turmoil, she has never seen before in her history. The double Deficits at the core of the Economic System are not only depleting the intellectual efforts of the Economic Managers but also inflicting permanent damages to many strategic assets and future vital prospects of the country.

In the financial year of 2018, the country’s GDP slightly surged to 5.8% as against 5 % previous financial year. In terms of Dollar, the country’s GDP stands just over the USD 305 billion. The major contributing sectors were Agriculture and Services. This is not a very encouraging figure considering the fact that the Government herself projected over 7% of GDP last year but never able to implement any concrete plans to realize that target. 

Since the inception of the new administration, the one thing which is more in national and international news than anything else is that of the Saga of Double Deficits. These Double Deficits are Trade Deficit and Current Account Deficit (CAD). With some exception in a few quarters, there seems to have a persistent declining trend in the figures of the country’s exports for many years. It looks like that there does not exist a single policy practically implemented to boost the exports of the country. According to the latest figures estimated at the end of the November 2018 the total country’s exports shrink to the USD 1,892 million from that of USD 1,908 million at the end of October. Similarly, the so-called horrifying Trade Deficit was estimated to be around USD 2,858.7 million. This Trade Deficit keeps coming back bigger and more lethal every month as the country’s import is sky-rocketing high. At the end of November, the country’s total import surged to US 4751 million. The worst part about the import details is the fact that for many years, the country has been importing numerous un-wanted and locally available products including peas, onions, vegetables, fruits, meat,  palm oil, lentils, cheese, imported finished foods & drinks, imported mobiles & laptops, imported luxurious home appliances, imported high-end fashion brands etc. Does our country need these products against our locally manufactured products?    

The second deficit which keeps on haunting the already fragile economy of the country is that of the Current Account Deficit (CAD). During the current fiscal year, the country’s balance of payment had severely stressed due to the CAD. The CAD is currently laying at around 5.8% of the total country’s GDP. In term of Dollar amount, the CAD is USD 18.1 billion against the total GDP of US $ 305 billion. The CAD is the main culprit which makes our country’s currency to dance insanely in the currency market and making the Dollar to fly high. In order to address this issue of CAD, the Government short-sightedly take the measures to curtail the import of the country by imposing the regulatory duties and import freights on a large number of imports. In long-run, the current economic team must devise some substantial plan that not only discourages the unwanted products as mentioned above but also encourage the local entrepreneurs to manufacture and market local products against the imported substitute.     

The international reserve of any country in terms of Dollar is usually acting like a cushion at international trade scenario. It gives financial leverage and trading confidence that the trading dollar will be paid by the country’s financial institutions on promised time. In case of Pakistan, the official international reserves according to SBP lie at USD 9.6 billion by September 2018. This reserve will merely able to pay about 1.6 months of country’s imports liability. This continuous declining of the country’s international reserve does not only give pain in neck of the economic system but also shatters the confidence of the international trading nations.

In order to address this issue of shrinking international reserve, the current regime has once again decided to look in past and try to mimic the same gesture of its predecessor. The Government (similar to that of the past governments’ policies) is planning to issue Sukuk Bonds and going for commercial and official loans in coming months. This same policy of getting the toxic loans at a very high interest does not only poison the economic foundation of the country but also create the same vicious cycle of Debt-Trap Diplomacy at international level where country loose strategic national assets by compromising the national sovereignty of the country. This same policy does nothing in term of economic development but surges the overall national external debts which in the end gives shivering legs and no respect in international community. At the time of current regime’s inception, the country’s external debt was around US $ 90 billion which has now become US $ 95 billion and it is highly anticipated that it will cross around US $ 105 billion at the beginning of the new-year.    

Similarly, the Gross Fiscal Deficit of the financial year 2018 is around 6.6 percent of the total GDP. This budget deficit keeps on rising every year is because of the Government’s wrong taxation policy along with the rotten structure of the FBR which incurs more than collecting tax. In 2018, the FBR happily collected US $ 30 billion of the total tax which 14.3% higher than the previous year. This seems encouraging but the loopholes lie in the taxation policy of the Government. It is the blue print of any Government in Pakistan to indirectly tax the masses against the direct tax. According to the economic textbook, only direct taxation has a positive and desire economic impact and indirect taxation makes economic system poisonous and incapable. The current regime, as seen in the past era and in previous tenure, has imposed more indirect taxes on Electricity, Petroleum Products, and Natural Gas including many other utilities. This does not only create inflationary pressure in the economy but also makes cost of doing local business expensive and less competitive against imported products.   

The recent events of increasing the taxes on Electricity, Petroleum, and Natural Gas among many and devaluating the PKR in quick succession spill the beans about the strategies of the economic team. Furthermore, the current Government is also planning to make a mini-budget in order to curtail the subsidies on many sectors of the economy. It is hilarious to note that these are the exact conditions put forwarded by the IMF to the Government of Pakistan even before the election took place. Similarly, this financial year would be a rare example in the history of the whole world if we witness the third budget speech of the finance minister in upcoming weeks.

In the midst of all these, the current Government is officially rejecting any economic framework proposed by the International Monetary Fund but at the same time the country’s economic team is gradually and silently inching towards the dictations imposed by the international lender. This Double-edged sword policy will not only make the life of the masses miserable but also shatter the confidence of both the national and international investors and business community.

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