See More on Facebook

Economics, Opinion

Managing Pakistan’s slowing economy

The government will find it challenging to keep Pakistan afloat.


Written by

Updated: April 12, 2019

In case you’ve missed it, there have recently been a slew of forecasts that say the economy is likely to slow to less than 3.5 per cent GDP growth this year (from 5.8pc last year), and next year will be even more difficult as it is expected to contract further to 2.5pc or thereabouts. The World Bank has put these projections out most recently, but the State Bank agrees (though they have not put out any projection for next year at this stage), and the data that the government and the IMF are dealing with during their talks says more or less the same thing.

Meanwhile, inflation is set to rise further for a few months, crossing 13pc, as per the World Bank, before it stabilises. The IMF and government projections show inflation to be elevated all through next year as the period average (the sum of monthly CPI readings for the year divided by 12) is expected to be higher than 13pc. The period average for the current year is just above 8pc, so we’re looking at a steep and sustained climb.

The data is not the only indication that the present state of difficulties is set to continue for at least another year and a half. Finance Minister Asad Umar in his numerous public pronouncements has said so, the latest example being his press conference right before his departure to Washington D.C. on Monday. He specifically said the period of slow growth will continue for another year and a half. The State Bank is not putting an endpoint on this timeline (perhaps they should) but they also say that the period of adjustment is set to continue.

Earlier in January, the finance minister was giving us assurances that the worst was over, that the economy had turned the corner. Today, he has tempered that line, as growth continued to plummet and inflation continued to rise. Even the medium-term strategy paper released by the finance ministry on the same day as his talk says that the period of adjustment will continue, and “will not be cost-free”, without really putting an endpoint on the timeline. Today, he is saying the economy will turn the corner later, but a painful and necessary period of adjustment has to be crossed before we get there.

By March, it was more than obvious that no corner had been turned. The State Bank said the process of adjustment would continue, inflation data came in at a five-year high and the revenue shortfall marched on. The government tried to tell us that the current account deficit had narrowed (which it had from February onward), and more recent trade data showed imports being constricted further. The external picture has been stabilised, they are now trying to say.

But it has not. Exports are flat, and despite a massive devaluation, Rs26 billion worth of a gas subsidy was given in January to “export-oriented sectors”, and much more. In an emergency, you can choke imports and expenditures to preserve foreign exchange reserves and cut the fiscal deficit. But these steps also choke growth. These measures are a little like trying to lose weight by eating less. You will probably lose weight, but is that really a healthy way to go?

In fact, these are emergency steps taken to prevent a full-blown crisis from emerging. The real game begins afterwards, when foreign exchange reserves have to be built and revenues raised.

In the next year, the IMF is asking the government to increase its reserve assets by almost 50pc, and increase FBR tax collection by around Rs1.4 trillion, where the government is proposing Rs1.16tr. The current account deficit, which the government has managed to reduce by around 1.5pc of GDP this year, needs to be contracted by another 2.8pc of GDP (or thereabouts) next year. These are the projections they were working with in the February meetings. They may change somewhat by the time the programme is finalised (which the finance minister says will be by end April), but the thrust will be the same.

The targets they’re talking about these days are ferocious. Asking the government to raise additional tax revenue of almost Rs657bn in the first year of the programme, when growth is set to plummet further and the tax base has not been broadened an iota and the business community is already reeling from an aggressive ‘recovery drive’ (which looks more like a ‘shakedown drive’ from their perspective), sounds next to impossible.

Perhaps the government team will be tempted to roll out a revenue gimmick, let’s say an amnesty scheme, and say ‘we will meet half the target with this scheme and the other half through intensifying our tax effort’. But such schemes have their own problems.

Likewise with reserve asset accumulation of almost $5bn in the first year (representing a nearly 50pc increase) while at the same time letting the exchange rate be ‘market determined’. Can this be done without resorting to gimmickry, or sharp swings in the exchange rate?

Fact is, we are nowhere near having turned the corner. We are only at the beginning of the adjustment, and it will take every ounce of our strength, patience and skill to navigate through the days to come.



Enjoyed this story? Share it.


Dawn
About the Author: Dawn is Pakistan's oldest and most widely read English-language newspaper.

Eastern Briefings

All you need to know about Asia


Our Eastern Briefings Newsletter presents curated stories from 22 Asian newspapers from South, Southeast and Northeast Asia.

Sign up and stay updated with the latest news.



By providing us with your email address, you agree to our Privacy Policy and Terms of Service.

View Today's Newsletter Here

Economics, Opinion

S. Korea grapples with gender discrimination in workplace

Despite it’s high economic developments, critics say that South Korea has to improve workplace equality. South Korea has seen its female employment index improve steadily over the past 10 years, but continues to struggle with gender equality when it comes to parental leave and consequent career breaks, data showed Monday. Unlike in most developed economies which tend to see the employment rate of women in their 40s peak and start declining in the 50s, Korea has seen women in their late 30s and early 40s — the prime age for childbirth and childcare — being pushed out of the labor market. All seven of the so-called 30-50 club count


By The Korea Herald
October 22, 2019

Economics, Opinion

More changes friendly to foreign investors on way in China

China is courting more FDI as their cash reserves run lower. China will roll out more measures friendly to foreign investors, including further removing business restrictions and leveling the playing field for foreign businesses, to foster a more enabling business environment and attract overseas investment. The decision was made on Wednesday at a State Council executive meeting chaired by Premier Li Keqiang. Meeting participants decided to open up more areas. Restrictive measures outside the national and FTZ negative lists on foreign investors’ market access will be consolidated. Restrictions will be lifted on the business scope for those foreign-invested banks, securities companies and fund management firms that are already operating in China. Policies on foreign investment in the automobile industry will be refined, including giving equal treatment in market access to domestic and foreig


By China Daily
October 18, 2019

Economics, Opinion

Malaysia’s PM Mahathir says rail line RTS linking Johor Baru to Singapore to proceed

The rail line has been on again and off again. Prime Minister Mahathir Mohamad on Thursday (Oct 17) said Malaysia will proceed with the 4km Johor Baru to Singapore rail line. His comments about the Rapid Transit System (RTS) rail link followed that of Malaysian Transport Minister Anthony Loke on Tuesday that details of the project will be decided by the Malaysian Cabinet within two weeks. Tun Dr Mahathir said when asked by reporters on Thursday: “We will proceed with the RTS but we will take some time.” Asked if this meant the Malaysian government had resolved 


By The Straits Times
October 18, 2019

Economics, Opinion

BOK slashes key rate to record-low 1.25%

The government hopes to stimulate a stagnating economy. South Korea’s central bank on Wednesday cut the country’s key interest rate to 1.25 percent, reflecting the sluggish economic growth, low inflation and declining exports. Its second rate cut in three months — to the lowest ever level — is in line with the global trend toward monetary easing. “We have cut the base rate considering the lower-than-expected growth outlook and low inflation,” said Bank of Korea Gov. Lee Ju-yeol in a press conference.The BOK’s rate-setting Monetary Policy Board decided to lower the base rate by 25 basis points from 1.5 percent that it had set three months ago. The move paralleled the US Fed Reserve’s decision last month to lower its key interest rate to the 1.75-2 percent range, down 25 basis points from the previous 2-2.25 percent range. The BOK board cited contractions in trade, sl


By The Korea Herald
October 17, 2019

Economics, Opinion

Hong Kong leader Carrie Lam unveils measures to ease housing crunch

Lam was forced to deliver speech via video after protests. Embattled Hong Kong leader Carrie Lam announced measures aimed at easing a housing shortage on Wednesday (Oct 16) as she battles to restore confidence in her administration and address widespread discontent after four months of mostly violent anti-government protests. Mrs Lam was forced to deliver her speech via video after her annual policy address in the Legislative Council was aborted when some lawmakers repeatedly jeered and shouted at her as she began speaking. After aborting her speech in the chamber tw


By The Straits Times
October 17, 2019

Economics, Opinion

Thai labourers face uncertainty over cost of production

The trade war has not left Thailand unaffected. The slowdown in global economy has dampened growth of the support industries in Thailand in its role as a part-producer for foreign investors, with all finished items shipped out to target countries or the parent companies. When investing companies add value to their products and sold at higher prices, Thai producers receive less profits, resulting in low wages for labourers. Production of industrial parts could be easily relocated to other countires, said Chalee Loysong, president of the Confederation of Electronic, Electrical Appliances, Auto and Metal Workers (TEAM). A clear sign of the move emerged when companies started to reduce costs through cutting down on the numbers of both full-time workers and those engaged in outsourced work, he said, adding that the latter are especially prompt to being discarded, given the absen


By The Nation (Thailand)
October 16, 2019